Zomato stock call: Bernstein says 'buy', analysts bullish on margins, returns

Tanushree Jaiswal

Last Updated: 21st June 2024 - 03:29 pm

Analysts at Bernstein brokerage have issued a 'Buy' recommendation for Zomato stock, setting a target price of ₹230 per share. They highlight the company's market leadership, pricing power, and reduced delivery costs as key factors contributing to expanding margins and improved returns.

Bernstein's target price for Zomato implies an approximate 17% upside from its last closing price of ₹196.69. Over the past year, Zomato stock has delivered stellar returns, nearly tripling in value.

The stock has also surged nearly 6% in the last three sessions following reports that Zomato will acquire Paytm's movie ticketing business. This announcement received strong endorsements from brokerages, with share price targets reaching as high as ₹280.

Bernstein analysts highlighted several factors that could drive margin expansion for Zomato. They also pointed out that Zomato's ad take rates have considerable room for growth, noting that for global retailers, ad income can constitute as much as 4-5% of Gross Merchandise Value (GMV).

Additionally, Zomato's asset-light model is anticipated to significantly boost its Return on Invested Capital (ROIC), which is projected to increase from 9% in FY25 to 35% in FY30. This asset-light strategy helps to moderate the capital intensity of investments, further supporting the growth of ROIC.

Previously, after Zomato confirmed initial talks with Paytm about acquiring its ticketing business, global brokerage UBS maintained its ‘buy’ rating and set a target price of ₹250 per share. Over the past year, Zomato shares have surged by more than 159%, more than tripling investors' wealth in the stock.