Broker’s call: Zomato (Buy)

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Target: ₹150

CMP: ₹128.80

Zomato has raised its platform fee for food delivery services by 33 per cent, hiking it from ₹3 to ₹4 per order in key markets effective January 1, 2024. It started levying a convenience fee of ₹2 per order in August 2023, which subsequently rose to ₹3 per order by end of August.

The resultant convenience fee (two months) has been one of the drivers of growth of 60bp q-o-q and 220 bps y-o-y in the take rate (19.4 per cent, excluding delivery charges) in Q2-FY24. The food delivery adjusted revenue too grew 21.8 per cent y-o-y in Q2-FY24 vs 18.5 per cent y-o-y in Q1-FY24.

Higher convenience fees, advertising income and commission from restaurants are key levers to improve profitability of the food delivery business. We have already factored in a take-rate expansion of 120 bps, from 19.1 per cent in FY24 to 20.2 per cent in FY26 with an adjusted EBITDA CAGR of 40 per cent during FY24E-26.

We retain our Buy rating with an SOTP-based TP of ₹150. We have assigned one-year forward EV/EBITDA of 47x to the food delivery business, and one-year forward EV/sales of 6x and 2x to Blinkit and Hyperpure, respectively.