Zomato Stock The Only New-Age Company That Mutual Funds Liked In August; Share Nears 1-Year High, Buy?

Online food delivery app, Zomato is the only new-age company that mutual funds loved in August month under the large-cap basket. The MFs increased their holding in this e-commerce player with market valuation reaching around Rs 8,048 crore in Zomato. On Friday, the Blinkit owner is trading near its 52-week high. The stock has zoomed by nearly 3% in single day. Year-to-date, Zomato shares have rallied by over 68%.

As per ICICI Securities data, the mutual funds increased their shareholding in Zomato to 82.46 crore shares in August from 73.67 crore shares in July 2023. Their market value in the online giant rose by nearly 30% to Rs 8,048 crore as of August 2023, compared to the valuation of Rs 6,195 crore as of July 2023.

Meanwhile, Fisdom Research's data also showed that Zomato has given 5.7% returns to mutual funds in 1-month.

On Friday, at the time of writing, Zomato shares traded at Rs 102 apiece, up by 2.6% on BSE. This was near to the intraday high of Rs 102.20 apiece touched earlier in the day --- which also inched closer to its 52-week high of Rs 102.85 crore.

At the current market price, Zomato has a market value of Rs 88,075.11 crore.

Should you buy Zomato shares?

In its research note dated September 12, Elara Capital analysts said, "Zomato has been driving profitability in the food delivery business since the past four quarters through a) lower GOV growth enhancing profitability/margin, b) driving higher frequency per customer via GOLD membership program, c) consistently curbing discounts, leading to lower marketing and advertisement expenses, d) higher ad revenue and 5) improved product mix - higher contribution of BPC/ private labels. Ad revenue has been a silver lining for Zomato as it enjoys niche customers with predictable behaviour, which is leading to higher ad revenue, thus boosting the overall take rates."

Analysts Karan Taurani and Rounak Ray at Elara in the report highlighted that Blinkit has significantly enhanced its contribution and adjusted EBITDA margin on a) improved throughput per dark store and refined efficiencies in the replenishment process (covering warehousing and middle-mile activities), b) moving away from loss-making markets, c)enhanced ad monetization after reaching a certain scale on revenue and d) improvements in operational costs.

Accordingly, they added, "We believe, Blinkit is poised to reach a break-even in the next few quarters, which may boost its valuation, further contributing to the overall growth trajectory."

On the valuation, Elara analysts note said, "We value food delivery, quick commerce and Hyperpure businesses separately. Expect the food delivery business/Blinkit/Hyperpure to post a CAGR of 22%/46%/45% in FY23-26E. We also expect the food delivery business to post an EBITDA margin (including ESOPs) of 20.6% inFY26E. We assign a one-year forward EV/EBITDA of 45x to the food
delivery business and a one-year forward EV/sales of 5x and 2x respectively to Blinkit and Hyperpure. We have assigned an 80% premium EV/sales multiple to Blinkit when compared with Zepto due to better profitability. Intensifying competition and the threat from ONDC are key risks to our investment rationale."

Hence, Elara has set a buy recommendation on Zomato shares for a target price of Rs 130, which implies a nearly 28% upside from the current price level.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.