UBS starts Zomato coverage with a buy, target of Rs 165

Mumbai: UBS has initiated coverage on Zomato, India’s first listed food delivery platform, with a ‘buy’ rating and a target price of Rs 165, which implies a 24 per cent upside from the current levels. The foreign brokerage sees a long runway for growth in the Indian food delivery space, estimating that will deliver an over 40 per cent compounded growth in revenue. This would make Zomato one of the fastest growing internet companies in the region. UBS said Zomato’s valuation is not cheap versus peers but the growth outlook is superior.

“While valuations are not cheap at FY24 estimated EV (enterprise value) to sales of 17 times, but EVSG (enterprise value to sales growth) of 37 times and superior growth leaves room for upside,” said UBS.

Shares of Zomato ended down nearly 6 per cent at Rs 132.6 on Tuesday after touching a high of Rs 147.80 during the day. The stock had listed at Rs 115 on Friday, 51 per cent premium to its IPO price of Rs 76 and extended gains to end up over 65 per cent. Despite Tuesday’s fall, the stock is up over 74 per cent from the IPO price.

Zomato’s IPO, which was open for subscription between July 14 and July 16, was subscribed 38.25 times. The portion reserved for qualified institutional buyers was subscribed 51.8 times while the HNI and retail category got subscribed 33 times and 7.45 times, respectively.

UBS said that not only did online food delivery get a boost globally in the pandemic ridden year of 2020, there are factors such as smaller family sizes, lesser time and willingness to cook, and increasing affluence which also provide a favourable long-term growth tailwind for the online food market in India.

“While FY21 was a seminal year for evolution of food delivery in India due to Covid, overall food delivery penetration (as per cent of food services market) remains low at 10 per cent versus 20 per cent in China, and food services industry as per cent of total food spending is extremely low at 10-11 per cent (vs 45-50 per cent in China and US). With a total of 10 million active users and 50-70 million total online orderers, we believe India has a long runway for growth,” said UBS.