Goldman bullish on Zomato, sees up to 50% upside scope

Goldman Sachs struck an optimistic tone on Zomato on Friday, arguing that concerns around its quick commerce arm Blinkit are exaggerated and current valuations overly pessimistic, even as the stock fell as much as 2.4% to Rs 205.85 on the day.

Goldman Sachs reiterated a "buy" rating on Zomato with a target price of Rs 310, implying an upside of over 50% from current levels. The brokerage believes that at the current market price, investors are effectively assigning negligible value to Zomato’s food delivery business or assuming that Blinkit’s EBITDA margins have structurally halved — both scenarios it considers highly unlikely.

The risk-reward is skewed to the upside, Goldman Sachs suggested, pointing to what it sees as unjustified bearishness surrounding Blinkit and undervaluation of Zomato’s food delivery unit.

The stock has been under pressure in recent months. While Zomato has gained 17.5% over the past year, it is down 22% in the last six months. Over the past month, the stock has declined 5.7%, though it has risen 1.5% in the past week.

Technical indicators also reflect weakness. The stock is trading below seven of its eight key simple moving averages, including the 100-day and 200-day levels. Its 14-day Relative Strength Index currently stands at 46.4, indicating the stock is in neutral territory.

Last week, Goldman Sachs purchased 60.07 lakh shares of Zomato worth Rs 281 crore through open market transactions via its Singapore affiliate.

The call from Goldman Sachs comes ahead of a major rebranding for the company. Zomato will change its name and stock symbol to Eternal, effective April 9.

Also read | Zomato shares drop 5% after BofA downgrades stock to ‘neutral,’ cuts target price to Rs 250.

( Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)