{"id":4699,"date":"2021-09-24T11:00:13","date_gmt":"2021-09-24T05:30:13","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=4699"},"modified":"2021-11-03T13:15:55","modified_gmt":"2021-11-03T07:45:55","slug":"zomato-received-underweight-rating","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/zomato-received-underweight-rating\/","title":{"rendered":"Zomato Received \u2018Underweight\u2019 Rating by JP Morgan \u2013 Share Prices Expected To Slip"},"content":{"rendered":"\n<p>The newly listed online food delivery firm Zomato recently received ratings from various investment banking companies. JP Morgan initiated coverage and gave it an &#8220;underweight&#8221; rating. JP Morgan pinned on it a target price of Rs. 112 per share, which implies that Zomato&#8217;s current share price might fall by 9%.<\/p>\n\n\n\n<p>If a stock receives an underweight <a href=\"https:\/\/www.tickertape.in\/blog\/crisil-ratings-impact-fixed-deposit\/?utm_source=blog&amp;utm_medium=article\">rating<\/a> it implies that the stock is likely to underperform. In other words, they\u2019re recommending to either reduce your holding or refrain from buying the stock altogether. This does not imply that the stock is bad, as the same stock could be labelled \u201cequal-weight\u201d or \u201coverweight\u201d by other analysts.<\/p>\n\n\n\n<p>JP Morgan cited the following four reasons behind the negative outlook on Zomato:<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/zomato-received-underweight-rating\/#Unjustified-Valuations\" title=\"Unjustified Valuations\">Unjustified Valuations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/zomato-received-underweight-rating\/#Average-order-value-AOV-likely-to-dip\" title=\"Average order value (AOV) likely to dip\">Average order value (AOV) likely to dip<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/zomato-received-underweight-rating\/#Increase-on-Discounts\" title=\"Increase on Discounts\">Increase on Discounts<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/zomato-received-underweight-rating\/#Market-share\" title=\"Market share\">Market share<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Unjustified-Valuations\"><\/span><strong>Unjustified Valuations<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>&#8220;Zomato trades at 21 x CY22 EV\/Sales which is 4 times higher than the average valuation of global food tech companies, we believe the premium is not justified because of the absence of significant levers like average order value (AOV) and market share gains,&#8221; says JP Morgan.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Average-order-value-AOV-likely-to-dip\"><\/span><strong>Average order value (AOV) likely to dip<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The current AOV for Zomato is Rs. 460, which is 1.6 times more than the pre-covid figure. According to JP Morgan analysts, AOV is the most important factor determining contribution <a href=\"https:\/\/www.tickertape.in\/blog\/margin-requirements\/\">margin<\/a>, and in the case of Zomato, they foresee a significant reversal of AOV. They predict that the frequency increase in existing customers is likely to come from lower-ticket size consumers. And the new customers from the top 50 cities are likely to utilise smaller <a href=\"https:\/\/www.tickertape.in\/blog\/can-i-buy-multiple-stocks-in-one-trade\/\">basket<\/a> sizes because their spending proclivity is lower than that of the top 10 cities.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Increase-on-Discounts\"><\/span><strong>Increase on Discounts<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Discounts provided by <a href=\"https:\/\/www.tickertape.in\/blog\/zomato-co-founder-quits\/?utm_source=blog&amp;utm_medium=article\">Zomato<\/a> to its customers have been declining sharply over the last 2 years. JP Morgan believes that as discretionary spending alternatives increase in a recovering <a href=\"https:\/\/www.tickertape.in\/blog\/impact-of-the-revised-fdi-policy-on-indian-economy\/?utm_source=blog&amp;utm_medium=article\">economy<\/a>, discounts will need to climb rapidly again to promote market expansion, reacquire inactive consumers, and retain customer wallet share.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Market-share\"><\/span><strong>Market share<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>JP Morgan believes that Zomato does not show scope to expand its share over rival food delivery firm, Swiggy. They expect Swiggy and Zomato to remain competitive, stating that the duopoly will continue to own ~50% of the market.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>JP Morgan finds Zomato&#8217;s premium valuations unjustified, rating it underweight. Read this article to know more.<\/p>\n","protected":false},"author":54,"featured_media":4821,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[10,1744],"tags":[792],"acf":[],"modified_by":"Ayushi Mishra","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/09\/05-1.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4699"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/54"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=4699"}],"version-history":[{"count":4,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4699\/revisions"}],"predecessor-version":[{"id":5525,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4699\/revisions\/5525"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/4821"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=4699"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=4699"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=4699"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}