Zomato has been hogging limelight at Dalal Street for quite some time as the food delivery platform has delivered multibagger returns A host of brokerages continue to remain positive on the stock and see more steam left. On the other hand, One 97 Communications Ltd continues to struggle after the RBI's regulatory scrutiny earlier this year.
In the latest news, Zomato will acquire One97 Communication owned-Paytm's entertainment and ticketing business for Rs 2,048 crore. The food delivery giant looks to expand its presence in the 'going-out' segment, while the embattled fintech major seeks to focus on its core financial services offerings.
The cash transaction was approved by Zomato and Paytm's boards on August 21, the two new-age tech companies informed the exchanges. The move marks Zomato's entry into a broader array of lifestyle services, encompassing dining out, movies, sports ticketing, live performances, shopping, staycations, and more within a single platform.
Paytm will retain the ticketing and entertainment options on its app for the next 12 months, but users will be redirected and asked to switch to Zomato's upcoming app for the 'going- out' segment. Zomato will incentivise customers to move to the new app called 'District'.
Post acquisition, Zomato would become the second largest entertainment ticketing platform in the country, behind only Bookmyshow, said JM Financial. "The all-cash deal value, implying a valuation of 1 times FY24 EV/GOV, towards the higher end of our expectation," said the brokerage which has maintained its 'buy' rating on the stock.
Shares of Zomato rose nearly 3 per cent to Rs 267 on Thursday, with a total market capitalization hitting Rs 2.3 lakh crore mark. The stock had settled at Rs 259.95 in the previous trading session on Wednesday.
"Going-out segment will likely operate at break-even levels in the near term as company will likely focus on growing GOV to Rs 10,000 crore by FY26 Management’s strong demonstrated execution in the past and absence of meaningful organised competition makes us believe Going-out could be the next big success out of Zomato," it added with a new target price of Rs 300.
Global brokerage firm Jefferies said that valuations of Zomato look compelling in the context of growth forecasts and ultimate margins. "Like food delivery, low capital intensity promises high return ratio at a steady rate. The third clear growth vector is established." is said, maintaining 'buy' rating on the stock with a revised target price of Rs 335, suggesting 30 per cent gains.
On the other hand, shares of One97 Communications, the parent company of Paytm surged nearly 5.5 per cent to Rs 604.45 during the session. The total market capitalization of the company stood near Rs 38,500 crore mark. The stock had settled at Rs 573.10 on Wednesday.
Motilal Oswal Financial Services and Emkay Global Financial Services have shared views on both Zomato and Paytm. StoxBox has picked both the stocks as its preferred techno-funda choice.
Zomato's food delivery business is stable, and Blinkit offers a generational opportunity to participate in the disruption of industries such as retail, grocery and e-commerce, it said. "We maintain our 'buy' rating on Zomato with a target price of Rs 300.
The sale would enable a sharper focus on core business, travel, deals, and cashback services. This strategic move could enhance shareholder value by concentrating efforts on high-growth areas. The sale of its entertainment business would provide a financial boost, Motilal Oswal said on Paytm, with a 'neutral' rating and a target price of Rs 550 on the stock.
Based on our rough pro forma estimates, net value addition in target due to the deal could be only Rs 25 share, far lower than the stock price reaction already seen after the news flow around the deal, even excluding the expected payment aggregator approval, said Emkay Global with a 'reduce' rating a target price of Rs 375 on Paytm.
Management expects the going-out business to operate near break-even on an adjusted EBITDA basis, while potentially delivering 4-5 per cent adjusted Ebitda margin. Its strong execution track record grants confidence that going-out will add further value over the long term. We will consider the acquisition in our estimates after deal closure," Emkay said with a 'buy' tag and target of Rs 270.
Another domestic brokerage firm StoxBox has also picked both the stocks in its techno-funda bets. It has a target price of Rs 615 on Paytm, while it pegs Zomato at 285 as short-term target. Stop losses shall be put at Rs 530 and Rs 252, respectively for these stocks, said StoxBox.