MUMBAI: After UBS Securities India, became the second brokerage firm to initiate coverage on with a buy rating, despite the online food aggregator nearly doubling from its issue price of Rs 76, within three days of its listing.

JM Financial has arrived at its 12-month price target of Rs 170 for Zomato, a 28 per cent upside, by valuing the company’s business at 11 times the enterprise value to adjusted sales as of March 2030 and then discounted that valuation for September 2022.

“Zomato is poised to leverage the decadal growth opportunity in India’s on-demand hyperlocal delivery ecosystem. The company is a market leader in the food delivery vertical and (like some of its global peers) could explore adjacent growth opportunities,” JM Financial said in a 33-page report.

Over the next five years, JM Financial expects Zomato’s revenues to grow at the rate of 48 per cent annually in the flagship food delivery business. The brokerage also expects Hyperpure business to ramp up with annualized growth of 59 per cent going ahead.

The brokerage opines that Zomato can churn out positive cash operating profit from 2024-25 provided its annual order volumes hit 1 billion and contribution margin rises to Rs 21 per order. In 2020-21, Zomato delivered 239 million orders while contribution profit per order was at Rs 20.5.

JM Financial expects the contribution per order to decline sharply going ahead as the pandemic-driven tailwinds fade but expect the same to improve in the long-term aided by higher market share and expansion of the addressable market.

“In the near term, we expect a significant impact on the dining-out business due to the company’s strategic decision to shut down operations in several international markets,” the brokerage firm said.

Shares of Zomato today ended 0.1 per cent at Rs 133.1 on the National Stock Exchange.

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