Zomato’s stock surged to a 52-week high despite a decline in benchmark indices, closing 4.14% higher at ₹105.70 on the National Stock Exchange (NSE) ahead of the 2023 ICC Men’s Cricket World Cup, which commenced on October 5, 2023. The company’s market capitalization reached ₹90,948 crore, with a year-to-date gain of 75%.
Jefferies’ Positive Outlook:
- The uptrend in Zomato’s share price follows recent comments from foreign brokerage Jefferies, which expressed optimism about the company’s growth potential.
- Jefferies highlighted that Zomato has a substantial opportunity for customer acquisition and revenue growth, despite the possibility of near-term profitability challenges.
- The brokerage expects a 20% Compound Annual Growth Rate (CAGR) in delivery revenue from FY23 to FY26 in its base case, with improving unit economics as Zomato scales up and customers become more willing to pay for convenience.
- Jefferies set a base case price target for Zomato at ₹130 and acknowledged the potential risks of increased competition from Swiggy and direct ordering.
Zomato’s Quick Commerce Arm, Blinkit:
- Jefferies noted that Zomato’s quick commerce arm, Blinkit, is outperforming Zomato in some cities and has similar per-order contribution.
- The brokerage emphasized the importance of general merchandise for profitability, with a goal to break even in the next four quarters as more dark stores are added to drive growth.
- Zomato aims to position itself as a 10-minute e-commerce platform, targeting a 60% CAGR for its quick commerce business in the medium term. This segment could eventually surpass food delivery.
- A real estate team has been established to identify suitable store locations for Zomato’s expansion plans.
Exploring New Opportunities:
- Jefferies highlighted Zomato’s intention to explore new opportunities. The company’s foray into new lines of business will depend on management’s confidence in scalability and long-term profitability.
- Zomato is focused on preserving a start-up culture and remains open to entering new areas as part of its future readiness strategy.
- While food ordering is available on the Open Network for Digital Commerce (ONDC), Jefferies is keeping a close eye on ONDC, although it acknowledges the challenges of the food delivery business.
Strong Financial Performance:
- In the first quarter, Zomato reported a net profit of ₹2 crore compared to a loss of ₹186 crore in the same period the previous year.
- Revenue from operations surged 71% YoY to ₹2,416 crore during the April-June quarter.
The positive outlook from Jefferies and Zomato’s robust financial performance have contributed to the company’s stock reaching a new high, demonstrating investor confidence in its growth prospects.