Shares of Zomato jumped nearly 3% to INR 248.65 apiece during the intraday trading session on the BSE today (January 17) after brokerage JM Financial reiterated its ‘buy’ rating on the foodtech major.
The recent market pessimism around accelerated investments in Blinkit’s supply chain and rising competition in quick commerce opens up an opportunity for long-term investors to build sizable positions, said the brokerage.
While the ongoing investor concerns have merit, they may not have a “meaningful impact” on Blinkit’s adjusted EBITDA margin, and supply chain investments are expected to help the company better compete with its peers, according to analysts at JM Financial.
The brokerage gave Zomato a target price of INR 300, which implies an upside potential of almost 24% from the stock’s previous close of INR 242. Over the past 12 months, the stock has nearly doubled in value, surging over 94%.
JM Financial analysts said that Zomato is a clear market leader across all its operating business segments, including food delivery and quick commerce, in terms of both gross order value (GOV) and revenue. The Deepinder Goyal-led company is also ahead of its rivals on the profitability front across business verticals, they added.
Zomato’s food delivery business reported a GOV of INR 9,690 Cr in the September quarter of the financial year 2024-25 (Q2 FY25) while Blinkit’s GOV stood at INR 6,132 Cr.
By comparison, Swiggy’s food delivery business reported a GOV of INR 7,191 Cr while its quick commerce arm Instmart reported a GOV of INR 3,382 Cr in Q2 FY25.
The brokerage further pointed out that Zomato is the only major hyperlocal delivery company in India that is currently generating free cash flows on a consolidated basis.
“This indicates the strong execution capabilities of the management, giving us the confidence that Zomato is the best placed company to fend off emerging competitive threats in quick commerce. We, therefore, prefer Zomato over Swiggy (BUY, INR 550) amongst the two listed hyperlocal delivery players, post recent correction in both stocks,” JM Financial said.
The brokerage expects Zomato’s food delivery segment to register a GOV growth of 3.9% on a sequential basis in the December quarter of the financial year 2024-25 (Q3 FY25) with adjusted EBITDA margins expected to expand by 40 basis points during the period.
In the quick commerce segment, Blinkit is expected to register a sequential GOV growth of 22.2% on the back of a surge in order volumes driven by an increase in monthly transacting users.
However, on a consolidated level, Zomato’s reported EBITDA is expected to shrink to INR 201 Cr in Q3 FY25 from INR 226 Cr in Q2 FY25 on account of mounting losses at Blinkit and an increase in ESOP costs, according to JM Financial.
Shares of Zomato were trading 2.25% higher at INR 247.45 apiece on the BSE at 1:54 PM today.
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