
Foreign brokerage CLSA said Zomato Ltd has reportedly hiked its platform fees from Rs 3 to Rs 4 in key markets. If the reports are true, CLSA believes the platform fee rise would partially (about 25 per cent of the impact) off-set the impact of GST on delivery charge. CLSA said Zomato had temporarily hiked the platform fee to Rs 9 on December 31, 2023, which signals an intent to use a more dynamic approach towards this component.
"In case Zomato is liable to pay GST on delivery charges it collects, Zomato may use a combination of an increase in commission rates, higher AOV’s through an increase in menu prices or higher platform fees to pass on the GST to the consumer," it said.
The foreign brokerage suggested a target of Rs 168 on Zomato. On Tuesday, the scrip was up 3.25 per cent at Rs 128.55 on BSE. The CLSA target suggests a 31 per cent potential upside over the prevailing price.
CLSA said a couple of alternatives or some combination of them could mitigate the potential impact of GST being levied on the delivery charge component.
It said while the delivery charge may vary from Rs 31-Rs 99 depending on the distance, about 40 per cent of orders do not carry a delivery charge (Zomato Gold subscribers). It suggested measures such as increase in platform fees by Rs 3.8 ( for 2 km) to Rs 10.70 (10 km), Increase in take rate by 0.9 per cent (2 km) to 2.5 per cent (10 km) and an Increase in average order value by 3.6 per cent (2 km) to 10.2 per cent (10 km).
CLSA said it gives Zomato's food delivery business 15 times EV/Ebitda multiple, in in-line with Chinese food delivery company Meituan and global food delivery company Delivery Hero. It assigned Zomato's Quick commerce business 12 times EV/Ebitda multiple, a 20 per ecnt discount to food delivery business. Besides, CLSA assigned a 5 times EV/Ebitda multiple to the Hyperpure business.
"We base our DCF on 25- years of explicit forecasts to better model the growth opportunity for consumption in India as we believe low penetration levels, rising incomes and a young population offers a long-runway for sales growth. We discount our cash flow assumptions at a WACC of 14.4 per cent and use a 4 per cent terminal growth rate beyond our explicit forecasts," it said.
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