Morgan Stanley has initiated its coverage on Zomato with a Overweight rating and set a price target of ₹135, which is almost 95 per cent higher to the current closing price of ₹69.55 on the BSE.
The recommendation was in the wake of Jio-bp providing EV mobility services (including access to battery swapping stations). “We think greater adoption of EV for last-mile delivery fleet not only supports climate-related sustainability goals for Zomato, but should also help in improving unit economics over the medium term,” said Morgan Stanley analysts Gaurav Rateria, Sulabh Govila and Rachael Alva.
Stock under pressure
The stock, which zoomed to a high of ₹169 in November 2021 post listing in July 2021, has been on the receiving end in 2022. The stock almost hit a low of ₹50 in May, but recovered partly since then.
According to Morgan Stanley, Zomato is a member of The Climate Group’s initiative, under which it has committed to 100-per cent adoption of EVs by 2030. This collaboration is one of the initiatives Zomato has taken to support its climate-related sustainability goals, it added.
Zomato has also partnered with Zypp Electric, an EV rental and logistics company. For Zomato, 95 per cent-plus of its emissions fall under the Scope 3 classification of the GHG protocol.
Recently, BofA Securities, in its report, said Zomoto is expected to benefit from growth in urbanisation leading to higher consumer disposable income and reduced dependence on home-cooked food and kitchen set-up. It will also benefit from the increasing digitisation with 95 crore people expected to have internet access by FY26 from 65 crore and with India likely to be the third-largest consumer market by 2030.
BofA Securiteis has set a price target of ₹82 for Zomato
Meanwhile, Zomato’s board will meet on Friday to discuss a potential acquisition transaction by the company, the consideration for which may be discharged through issuance of equity shares of the company through a preferential issue. Though it did not disclose the company’s name in the notice, according to media reports, the board will likely take a call on the acquisition of quick commerce company Blinkit.
In Q4 FY22, Zomato saw its net loss widen to ₹359 crore as compared to ₹134 crore in Q4-FY21.
Faster-than-expected execution in new adjacencies and higher-than-expected AOVs are key upside risks for its call, said Morgan Stanley, while citing delay in transition from home-cooked food mindset to restaurant food, potential entry of a new player and low switching costs, regulatory changes around labour laws, and growth and profitability trade-off as downside risks.
June 23, 2022
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