Home/ Markets / Stock Markets/  As Zomato shares crash for second day, Jefferies says 'great case' to buy

Shares of Zomato extended decline with the stock hitting a new all-time low for the second consecutive day on Tuesday of 44 apiece on the BSE. Zomato shares had fallen to its all-time low on Monday post the ending of the mandatory pre-IPO (Initial Public Offering) shareholders lock-in period on July 23.

“Worries of Fed tightening & investor focus on cash flow have been weighing on the Internet names, including food tech, globally. From an exuberance at the time of listing last year, Zomato is now unloved, having underperformed peers ytd. Blinkit acquisition elongates path to profitability and despite management guidance on a break-even in food delivery, investors are not giving much benefit of doubt," said Jefferies in a note. 

The global brokerage think this makes for a great case for LT (long-term) investors to Buy Zomato shares and has a target price of 100 on the stock.

“Zomato management has also accelerated its journey towards better unit economics and is now eyeing a break-even in the food delivery business in the foreseeable future. Adjusted Ebitda losses for 4QFY22 was<US $30m, with food delivery losses at US$10m. We expect this to get better quarter after quarter now as mgmt. lowers its CAC by tapping into its MAU to drive MTU, reduces discounts, increases take-rates among others," Jefferies added.

Unlike past where Zomato intended to invest across multiple businesses, with some strategic (eyeing an eventual merger) and others as financial investment, the company now intends to conserve cash. The company does not plan to commit any resources for existing or now minority investments, the brokerage highlighted.

“The only exception to mgmt's conservative stance is its decision to buy Blinkit, which may be driven by FOMO or protect its food delivery turf, as highlighted post acquisition. Time horizon probably longer for the mgmt. as against investors as this business will likely be cash guzzler in the medium term - Zomato itself has guided for $400m of investment over the next two years. This remains a medium-term concern for investors as this would weigh on company profitability," Jefferies added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Updated: 26 Jul 2022, 09:56 AM IST
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