HSBC expects 20% upside in Zomato shares
HSBC has raised its price target on Zomato to ₹120 from ₹102 while retaining its buy rating, citing improved growth and profitability prospects for instant grocery delivery service arm Blinkit. The revised price target implies a return of about 20% from Wednesday's closing price of ₹99.88.
HSBC has valued Blinkit at $5 billion.
At Wednesday's closing price, parent Zomato's market value was ₹85,941 crore or over $10.42 billion.
«Operationally, hyperlocal business is a lot more challenging than FD (Food Delivery), but the TAM (Total Addressable Market) is much larger ($250-300 billion) and the growth is coming from share gains from local Kirana stores,» said the brokerage in a note.
The stock rose 5.5% on Wednesday amid a flurry of block deals on the NSE where SoftBank's fund sold 100 million shares to various funds at ₹94.7 apiece.
«FD (Food Delivery) growth is coming from replacing home-cooked food; thus, fundamentally changing the underlying product itself,» said HSBC. «At the current scale of the FD industry (10 billion), growth would be a lot more gradual (15% has been our estimate), while hyperlocal would still enjoy the hyper-growth phase for a few more years.»
