Zomato share gains as UBS sees 22% upside

UBS, which retained the ‘buy’ call on the stock said, food delivery volumes were up 29 percent in February from the year-ago period

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Zomato shares gained 2.7 percent in early trade on March 18 after brokerage UBS reiterated its “buy” call on the Gurugam-based food-delivery platform and restaurant aggregator.

UBS has retained the target price sees at Rs 195, an upside of 22 percent from the previous session’s close.

Using data from the UBS Evidence Lab, the brokerage said across the industry, food delivery volumes were up around 4 percent in February from the previous month. This is in line with the seasonality, as delivery volumes saw a growth of 4 percent in February 2023 as well.

After outperforming Swiggy in most of CY23, Zomato‘s volume growth lagged its Bengaluru-based rival in December and January.

In February, both Zomato and Swiggy’s average daily orders increased around four percent from the previous month. Given its lower base effect, Zomato’s YoY volume growth in February was 29 percent against Swiggy’s 8 percent, UBS said.

At 10.30 am, Zomato was trading at Rs 160.5 on NSE, 0.3 percent higher from the previous session’s closing price.

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In terms of gross merchandise value, the receipts data suggests a GMV growth of 4-5 percent MoM (adjusted for number of days) for both Zomato and Swiggy in February. “On a YoY basis, GMV is up 35 percent for Zomato and 13 percent for Swiggy,” said UBS.

“Based on the data for January and February, and assuming similar trends play out in March as in the previous year (+2 percent MoM in March 2023), the data suggests a low to mid single digit QoQ GMV decline in Q4FY24,” the brokerage said.

While there could be a downside to the estimates of GMV growth for Q4, UBS expects on-year growth to remain healthy and within management’s guidance of 20 percent or more.

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