Zomato to rise 15% on acquiring Paytm's entertainment business, says Motilal Oswal

Brokerage firm Motilal Oswal estimates that the acquisition of Paytm's entertainment and ticketing business by food delivery giant Zomato will lead to upside of as much as 15 per cent in Zomato’s share price. The move will be an attempt at expanding Zomato's 'going out' business.

Currently, Zomato offers only dine-out table bookings and a few live ticketing events. However, this is important inclusion, which—though not used by many—will beef up Zomato's upcoming "District" app, which is expected to be launched in the coming weeks.

Motilal Oswal says, District not a big near-term delta on Zomato's overall valuation, but has potential to make Zomato a dominant platform in food delivery, grocery and entertainment businesses, leading to higher wallet share from urban consumers. It makes Zomato a formidable player across most of the spending categories.

For the District business, Motilal Oswal has estimated a take rate of nearly 12 per cent. This would translate into revenues of Rs 23.60 crore in FY24 from a gross order value (GOV) of over Rs 2,000 crore. Furthermore, in view of the commission rates varying across offerings, movie tickets have become relatively commoditised, and hence, marquee sport and music events would command platform fees due to their exclusivity.

Zomato's existing going-out business, mainly around restaurant reservations, has a lower take rate—it's more commoditised at about 8 per cent. Large parts of Paytm's offerings, specifically through Paytm Insider, claim a higher blended take rate—that too through exclusive access to some popular live experiences/events.

Although Motilal Oswal believes it is too premature to comment on what could be a fair value for the District app, it recognises that Zomato has the potential to unlock value after acquisition, as has already been witnessed in the case of Blinkit. If executed properly, the District app will be a value unlocker that can further reinforce Zomato's influence on consumers' spending patterns in essential urban market recreational activities.

Deal is likely to be completed by Q2FY25. Motilal Oswal values Zomato using a discounted cash flow  (DCF) methodology with a 12.5 per cent cost of capital and maintains a buy rating for target price of Rs 300.

As of 10:41 am, Zomato shares traded 0.15 per cent higher at Rs 260.35 in-line with the Sensex which was up 0.19 per cent.