
Morgan Stanley has upped its price target on Zomato Ltd by 31 per cent, as the foreign brokerage feels a leadership position in food delivery, with a favourable market structure, solid execution in the growing quick commerce business and a strong balance sheet, make Zomato a key play.
Zomato stock valuation appears expensive but Morgan Stanley expects strong growth outlook and good execution to support premium multiples.
For now, the brokearge has cut its F25 adjusted Ebitda forecast for Zomato by 5 per cent as it assumes higher investments in the quick commerce business. Morgan Stanley said it has upped its estimate for FY26 by 13.4 per cent and that it has introduced FY27 forecasts.
"We lift our target multiple to 44 times on FY27 from 39 times (in line with EV/adjusted Ebitda to Ebitda CAGR of 1.3 times). We also roll our valuation forward by three months to June 2025. Overall, our price target rises 31 per cent (18 per cent adjusted EBITDA increase, 4.5 per cent rolling valuation forward, 12 per cent higher multiples, offset by 2 per cent dilution)," it said.
Morgan Stanley said the near-term investments may drag Zomato's FY25 profits, but medium-term appears well-positioned to deliver strong margins.
Zomato indicated it expects quick commerce business to remain near break-even in the next few quarters. Morgan Stanley said near-term investments would accelerate growth and should provide medium-term competitive
advantages for the company and strengthen its moat.
It has raised its FY25-FY27 gross value order (GOV) assumptions for quick commerce by 33-37 per cent, largely in line with the company's strong store addition plans. It assumed FY27 adjusted Ebitda margins for this business at 3.5 per cent, which the foreign brokerage said still appears conservative against Zomato's outlook of 4-5 per cent.
"Overall, we assume FY27 consolidated GOV (food delivery and QC) of $11 billion with adjusted Ebitda margins of 5.1 per cent," Morgan Stanley said.
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