Morgan Stanley on three reasons why Zomato’s premium valuations will sustain

The brokerage firm said that Zomato’s robust growth compared to peers, a consolidated market structure and steady-state margins that match global peers are the main drivers behind the stock’s premium valuations. “We have used a discounted equity valuation approach for Zomato and believe the stock will trade at a valuation closer to peers even in FY26, for future growth at a 20-25% CAGR,” the brokerage firm said.

Yet, Morgan Stanley is not buzzing about the stock like many other brokerage firms who have recently initiated their coverage on the stock. Morgan Stanley has initiated coverage on Zomato with an “equal weight” rating and a price target of Rs 140, which suggests limited upside from current level.

The brokerage firm is counting on the company to be one of the fastest growing online food delivery companies in the world with annualized revenue growth of 73 per cent in the next three years. With Zomato’s contribution margins turning positive last year aided by the pandemic, Morgan Stanley expects profitability to come in 2025-26.

“Zomato has strong business moats (market leadership in a fast-growing and underpenetrated market) with potential to add new adjacencies. However, we view risk-reward as balanced at the current stock price,” the brokerage firm said.

For Morgan Stanley, the key risks to its assumptions lie in increased competitive intensity in the industry and slower sequential growth in gross order value of the company.