 "Zomato, Zomato stock, Food delivery")
The nearly 260% surge in Zomato since last April has made it difficult for consensus to keep up, but expectations continue to rise. Photographer: Dhiraj Singh/Bloomberg
While the move will solidify ‘going-out’ offering, the acquisition may take time to reap results for Zomato, they cautioned.
On the bourses, Zomato share price rose 2.7 per cent to Rs 267 in the intraday trade. It, however, erased gains to trade flat. On the other hand, Paytm share price hit an over six-month high of Rs 604.45, rising 5 per cent in the intraday trade.
By comparison, the BSE Sensex was up 235 points at 81,140 level at noon.
Zomato-Paytm deal
On Wednesday, Zomato’s Board approved to acquire Paytm’s entertainment and ticketing business (for movies, sports and events) in an all-cash deal worth Rs 2,048 crore. The deal implies a valuation of around 1x FY24 EV/GOV.
At the end of the financial year 2023-24 (FY24), gross order value (GOV) of the arm was around Rs 2,000 crore (up 29 per cent year-on-year) and had 78 million ticket purchase transactions by over 10 million customers. Revenue of the business was Rs 197 crore with adjusted Ebitda of Rs 29 crore.
They added that while Paytm’s current business is at an adjusted Ebitda of 1.5 per cent of GOV, higher commissions for exclusive events and cost optimisation could take this higher in the medium term.
Meanwhile, Boards of the two companies have decided that the ticketing business will continue to run on the Paytm app for a period of up to 12 months to ensure a smooth transition. The deal is expected to be closed in Q2FY25.
According to analysts at Nomura, smooth integration of the acquired businesses into the new District app could be challenging for Zomato.
“Unlike Blinkit acquisition, where the founder Albinder Dhindsa and his team were well known to Zomato management, here the acquired team is completely unknown. Secondly, there could be an initial cash burn to incentivise the users to migrate from Paytm’s app to Zomato and District app,” they explained.
Nomura has maintained its ‘Buy’ rating on the stock with an unchanged target price of Rs 280 as it believes the key drivers for Zomato’s share price will remain the sustained momentum in Quick commerce business in the near-term and Food Delivery business in the medium term.
Long-term strategic fit
Once executed, Zomato would become the second largest entertainment ticketing platform in the country, behind only ‘Bookmyshow’.
“The management’s strong demonstrated execution in the past (with Blinkit) and absence of meaningful organised competition (barring Bookmyshow) makes us believe ‘Going-out’ could be the next big success out of Zomato in the long-run,” said JM FInancial.
It has raised the stock’s target price to Rs 300 (from Rs 260 earlier), with a ‘Buy’ rating, to factor-in the deal’s impact.
“Like Zomato’s food delivery segment, the ticketing business has low capital intensity, which promises a high return ratio once it reaches a steady state,” said those at Jefferies with a higher target price of Rs 335 and a ‘Buy’ rating.
First Published: Aug 22 2024 | 12:59 PM IST
