SUMMARY
Goldman Sachs hiked its PT on Zomato to INR 160, which implies an upside of 14.6% to the stock’s last close. It sees Blinkit’s GOV growing at a 45% CAGR in FY24-FY27 period
Jefferies raised its PT on Zomato to INR 190, which implies a 36.1% upside to the stock’s last close
HSBC said though Zomato’s Q3 FY24 earnings is expected to be muted, particularly in food delivery, Blinkit will continue to grow strongly
After HSBC, now Goldman Sachs and Jefferies have increased their price targets (PTs) on foodtech major zomato
on the back of the strong growth in its food delivery and quick commerce businesses.
Goldman Sachs hiked its PT on Zomato to INR 160 from INR 130 earlier, which implies an upside of 14.6% to the stock’s last close. The international brokerage said Zomato is the fastest growing company within its global food delivery and India internet coverage.
Analysts at Goldman Sachs noted that the food delivery market has consolidated between two players, with Zomato holding about 55% of the market share, as of the first half of 2023. Moreover, Blinkit is now among the top three online grocery platforms in India in terms of gross order value (GOV), they said.
The brokerage expects Blinkit’s GOV to grow at a 45% CAGR between FY24 and FY27, higher than the industry rate of 34%.
“Given the potential TAM for online grocery is 8-10X larger than that for food delivery per our estimates, Zomato achieving positive unit economics in this segment recently could result in revenue growth remaining elevated for a multi-year period,” said the analysts at Goldman Sachs.
It is pertinent to note that Zomato’s quick commerce business Blinkit turned contribution positive for the first time in Q2 FY24 and the company sees the business achieving adjusted EBITDA breakeven by Q1 FY25.
Speaking on the competition front, analysts at Goldman Sachs also said that trading losses for Zomato’s key competitor Swiggy were 4X compared to the Deepinder Goyal-led startup in the first half of 2023.
“…with Swiggy aiming to achieve group level profitability by CY24, we expect competitive intensity across both food delivery and quick commerce to remain benign for Zomato,” the analysts added.
Besides, in a research note titled, “The rise of ‘Affluent India’”, Goldman Sachs included two new-age tech startups as its top ideas – MakeMyTrip and Zomato.
The research report said that only about 4% of India’s working-age population has a per capita income of over $10,000 (a little over INR 8 Lakh), translating to about 60 Mn consumers. As per its analysis, this consumer cohort has grown at a CAGR of over 12% in the 2019-23 period.
“If the current trajectory continues, we expect ‘Affluent India’ will grow to about 100 Mn consumers by 2027,” it said.
It sees categories such as leisure, jewellery, out-of-home food and healthcare, and premium brands within all categories as the largest beneficiary of this rising ‘Affluent India’. While several stocks are exposed to these segments, Zomato could be one of the major beneficiaries of the same, Goldman Sachs said.
It also expects Zomato’s revenue to grow at a 30% CAGR in the FY24-FY27 period, the highest within its India Internet coverage.
What Do Others Think?
Most brokerages have now started shifting their focus to Blinkit’s business growth as they expect the business to drive Zomato ahead.
Jefferies raised its price target on Zomato to INR 190 from INR 165 earlier, which implies a 36.1% upside to the stock’s last close.
Blinkit is a large opportunity in the exciting quick commerce space, with potential for further surprise ahead even as investors have just started to view this more positively, said the brokerage.
Being at an early stage of growth, Blinkit will see a faster scale up at 38% CAGR over FY24-28 while its margins are also expected to see a smart expansion with contribution margin rising to 6% by FY28 and EBITDA margin to 4%, Jefferies said.
Meanwhile, the brokerage also noted that Zomato continues to clock strong growth with improving profitability which justifies its premium valuations.
Shares of Zomato surged over 100% in 2023 while its market cap also doubled to cross the $12 Bn mark – the highest valuation among the other listed new-age tech startups.
Though the long-term view remains positive, HSBC Global Research sees Zomato reporting a muted Q3 FY24, particularly in its food delivery business, post a bumper second quarter.
HSBC expects Zomato to report lower-than-expected December quarter results, which could also be slightly weaker than the September quarter.
However, the brokerage expects Blinkit’s growth to have remained strong in Q3 FY24.
“We believe food value is well captured in the current stock price and further upside will largely be driven by the QC (quick commerce) business. We now also expect profitability improvement to be gradual in the near term and hence market focus will be on QC growth,” HSBC research analysts said. “After an extremely strong 2023, we expect relatively muted business and stock performance in 2024.”
All the above-mentioned brokerages have a ‘buy’ rating on Zomato.
After touching a new 52-week high at INR 141.55 during the intraday trading on Friday (January 12), shares of Zomato ended today’s session about 1% higher at INR 139.6 on the BSE.
