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. 223 down by 7% from its previous close of Rs 239.75. The stock touched an intraday low of Rs. 218.95. Zomato also outperformed Nifty in a 1-year timeframe by giving a return of 71.4% as compared to Nifty’s 1-year return of 9.91%.
Q3 Results
Revenue Growth
Zomato Ltd demonstrated significant growth in its financial performance from December 2023 to December 2024. Sales increased by 64% year-on-year (YoY), rising from ₹3,288 crore to ₹5,405 crore. This surge in revenue reflects the Company’s successful strategies, including expansion and stronger market demand for its services. The growth in sales was substantial, both in absolute terms and as a percentage, showcasing robust business development over the year.
Profitability and EBITDA Improvement
EBITDA also saw a remarkable increase, growing from ₹51 crore in December 2023 to ₹162 crore in December 2024. The company improved its Operating Profit Margin (OPM) from 2% to 3%, signaling enhanced operational efficiency and better cost management. This growth in profitability indicates that Zomato’s efforts to scale operations have paid off, with a focus on improving margins and controlling costs.
Depreciation Impact and Tax Strategy
However, Zomato’s net profit growth was partly impacted by a sharp increase in depreciation, which jumped from ₹128 crore to ₹247 crore YoY. The rise in depreciation was primarily due to the expansion of the Blikit store network. This expansion led to higher depreciation charges, a strategic move that helped reduce taxable income and underpay taxes. While this impacted the net profit, the overall financial performance remained positive.
Blinkit Store Expansion Pressures Net Profit
Zomato’s aggressive expansion of Blinkit’s quick commerce stores has significantly impacted its financials, causing a decline in net profit for the December quarter. The company faced margin pressure due to increased spending on opening new centers to support Blinkit’s rapid growth.
While Blinkit’s revenue more than doubled, the expansion led to higher investments, resulting in a 14% QoQ decline in consolidated adjusted EBITDA, or ₹45 crore. This surge in investment contributed to quarterly losses, despite improvements in food delivery margins, reflecting the cost burden of scaling the quick commerce business.
Brokerage Target
Nomura: Buy Call, Target Rs 290
Nomura has set a target price of ₹290 per share for Zomato, reflecting a potential upside of approximately 30.68% from the current market price (CMP) of ₹222. Nomura remains positive on Zomato’s positioning in the quick commerce space, despite intensifying competition, and believes the company is well-positioned to be among the top two players. The brokerage also highlighted the improvement in profitability in the food delivery business as a key positive.
Jefferies: Hold Call, Target Rs 255
Jefferies has revised its target price to ₹255, down from ₹275, maintaining a “Hold” rating. With the CMP at ₹222, this target suggests an upside of 14.86%. Jefferies points out the mixed performance in Q3, with modest growth in the food delivery segment but improved margins. The quick commerce business, Blinkit, saw strong growth but faced losses due to high competition and investment, impacting Jefferies’ outlook.
Bernstein: Outperform, Target Rs 310
Bernstein maintains an “Outperform” rating with a target price of ₹310, implying an upside of 39.64% from the current price. Bernstein is optimistic about Zomato’s quick commerce growth and aggressive expansion plans. While the food delivery segment performed better than expected, Bernstein cautioned about margin pressures in quick commerce but remains positive, expecting any market corrections to be short-lived.
CLSA: Outperform, Target Rs 400
CLSA has raised its target for Zomato to ₹400, marking the highest target among brokers. This suggests a substantial upside of 80.18% from the CMP of ₹222. CLSA bases its target on the rapid growth anticipated in Zomato’s quick commerce arm, Blinkit, forecasting a remarkable CAGR of 51% in revenue and 502% in EBITDA growth from FY24 to FY27. The aggressive expansion of Blinkit is expected to drive significant value for the company.
Written By: Dipangshu Kundu
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