Zomato Ltd., founded in 2008 is an online food delivery company. Zomato’s technology app connects the customers, restaurant partners and the delivery partners. The customers use the app to search restaurants, order food, book a table, etc. The restaurant partners are provided with marketing tools which enables them to acquire customers and are also provided with efficient delivery service. While the delivery partners get flexible earning opportunities. Apart from all these, it operates Hyperpure, which supplies high quality ingredients and kitchen products to restaurant partners.
Zomato had relied on huge discounts to drive business growth. Over the years, it worked aggressively on the unit economics due to which its food delivery business has now become contribution positive. Additionally, its advertisement and sales promotion expenses decreased significantly over the past three fiscals. The company has an asset light scalable business model and first mover advantage in food delivery business. Post pandemic, it will have an expanded target market to cater to. On the back of high brand value and a proven business model, we are anticipating a 31.8% CAGR rise in GOV over FY21-25E. With a gradual decrease in promotional discounts, advertisement cost, we expect Zomato to become EBITDA positive by FY25. The food services industry is massive, which provides a food aggregator company like Zomato with immense opportunities to grow. Considering the long term growth potential, we assign a “BUY” rating on the stock with a target price of Rs. 175 per share.