Zomato stock hits a fresh high after MSCI index inclusion

Shares of food delivery company Zomato surged 9 per cent on Friday to close at a new lifetime high of Rs 153 apiece. The gain was underpinned by the stock’s inclusion in the MSCI Standard Index and strong top-line performance in the September quarter.

The start-up, which made its stock market debut in July, is currently trading 102 per cent higher than its issue price of Rs 76. Zomato is currently valued at Rs 1.21 trillion.

Global index provider MSCI has added Zomato to its Standard Index, which is expected to bring in $160 million (nearly Rs 1,200 crore) of passive investment into the stock by the end of this month. The changes to the MSCI indices will be implemented on November 30.

Zomato’s addition to the index is one of the fastest entries for a stock post listing.

Analyst Brian Freitas, who publishes on Smartkarma, expects the stock to also get added to the FTSE All-World Index in December. That addition could result in passive inflows of another Rs 600 crore.

During the September quarter, Zomato saw 2.6 times year-on-year jump in gross order value (GOV) and 2.4 times jump in revenues. Sequentially, growth came in at 21 per cent and was significantly higher than Street estimates. Growth in GOV was due to a higher number of restaurants, delivery partners, and transacting customers on its platform.

Global brokerage JP Morgan initiated coverage on Zomato with an ‘underweight’ rating and price target of Rs 120.

“Zomato’s large target addressable market, leadership position, attractive market structure and limited regulatory headwinds are more than reflected in current multiples on peak economics, particularly when adjusted for accounting differences with global peers. Our sum of the parts with generous multiples (2x global peers) still points to 16 per cent downside. We see Zomato’s scarcity premium fading as we expect it to disappoint on optimistic consensus expectations of FY23 adjusted Ebitda (earnings before interest, taxes, depreciation, and amortisation) breakeven and FY24 Ebitda (we are 81 per cent below) from modest AOV/economics,” it said in a note.

Other additions to MSCI

Godrej Properties, SRF, Mphasis, Mindtree, Tata Power and IRCTC were the other stocks that were added to the Index. These stocks are expected to see inflows in the range of $172 million and $228 million. Meanwhile, IPCA Labs and REC were removed from it. The exclusion will lead to outflows of $114 million from IPCA and $99 million from state-owned REC. Both companies will now get added to the MSCI Small Cap index, along with about 70 other stocks. Some of them include TVS Motor, Grindwell Norton and Kansai Nerolac Paints. These stocks could see inflows between $10 million and $22 million. About 40 stocks saw inflows of less than $5 million on account of their addition to the MSCI Small Cap index, according to an analysis by IIFL Alternative Research.