The food delivery and quick grocery business in India has seen tremendous growth in recent years, driven by changing consumer habits, urbanization, and a growing preference for convenience. Companies like Swiggy and Zomato dominate the food delivery landscape, offering a vast range of cuisines from local restaurants and chains, with fast delivery times and user-friendly apps. These platforms also expanded their services to include grocery deliveries through partnerships with supermarkets and local kiranas.
Swiggy Instamart and Zomato’s BlinkIt cater to consumers seeking quick grocery solutions, capitalizing on the increasing demand for online shopping. As internet penetration deepens and consumer trust grows, the industry is poised for further growth, with innovations like dark kitchens and AI-powered logistics expected to improve service efficiency and reach tier-2 and tier-3 cities.
Share Price
The shares of Zomato Ltd. are currently trading at Rs. 243 up by 0.5% from its previous close of Rs 241.9. The stock touched an intraday high of Rs. 244.8. Zomato also outperformed Nifty last year by giving a return of 84.8% as compared to NIfty’s return of 5.77%.
Recent Update
CLSA Upgrades Zomato Stock to ₹400 Target
CLSA has raised its target price for Zomato to ₹400 from ₹370, maintaining its “outperform” rating on the stock. This upgrade marks the first time Zomato has received a ₹400 target, making it the highest among all analysts covering the company. This implies a 62% upside potential from the current price of Rs. 247.
The brokerage views the recent correction in Zomato’s stock price, which has fallen over 25% from its peak of ₹304, as a significant buying opportunity for investors looking to capitalize on the long-term growth potential of the company.
Recent Stock Correction Presents Buying Opportunity
Zomato’s stock price has seen a sharp decline since the start of the year, providing an attractive entry point for investors, according to CLSA. Despite the stock’s correction, CLSA remains optimistic about Zomato’s prospects, particularly due to the expected rapid growth in the quick commerce market.
The brokerage notes that this correction should be seen as a short-term fluctuation, with Zomato’s business fundamentals remaining strong in the medium to long term. CLSA’s optimism stems from the belief that Zomato’s revenue will grow significantly in the coming years.
Strong Growth Potential in Quick Commerce
CLSA’s rationale for the upgrade is based on the anticipated rapid expansion of the quick commerce sector over the next three years. The brokerage forecasts Zomato’s revenue to grow at a remarkable Compound Annual Growth Rate (CAGR) of 51% from FY24 to FY27.
This growth will be largely driven by the expansion of Zomato’s quick commerce arm, Blinkit. CLSA also expects Zomato to experience a substantial increase in Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA), forecasting a CAGR of 502% during the same period.
Margins to Be Soft in Short Term
While CLSA is bullish on Zomato’s long-term growth prospects, the brokerage does anticipate soft quick commerce margins for Zomato in the December quarter. This is expected to be a temporary impact due to Blinkit’s rapid expansion, which typically involves higher costs during the growth phase. However, CLSA views this as a short-term issue and believes the company’s long-term outlook remains solid.
Written By: Dipangshu Kundu
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