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JMFL
Info Edge (Buy)
CMP: ₹2,255
Target: ₹2,600
Zomato reported strong revenue growth and improving profitability trends in 1HFY20. The month long saga of #Logout campaign is likely to have had limited impact as contribution from Zomato Gold is just a fraction of the company’s revenues, which we had indicated in our report dated August 27, 2019.
The company reported 225 per cent y-o-y revenue growth to $205 million in H1, driven by strong order volume growth of 290 per cent y-o-y in its delivery business, as it expanded operations to over 500 cities in India versus around 200, as of March 2019. The company also reported a straight six-months month-on-month decline in burn rates (absolute EBITDA loss), with the monthly EBITDA loss in September 2019 down 40 per cent from March 2019, due to cost optimisations and improvement in take rates.
We believe this showcases Zomato’s ability to expand its delivery business while simultaneously working towards profitability. We continue to forecast revenue CAGR of 77 per cent for the company over FY19-FY21E and apply the same EV/sales multiple as applicable during the last lead round of funding by Ant Financials in October 2018 to arrive at Zomato’s implied valuation of $3.3 billion. We believe the recent stock correction of Info Edge is more of an opportunity for fresh investments in the stock as the company continues to witness strong operational performance improvement in its standalone businesses as well.
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