Zomato Shares Dip 5% After Jefferies Downgrade To ‘Hold’

Shares of foodtech major Zomato dipped as much as 4.9% from yesterday’s (January 6) close to INR 251.60 during the intraday trading today (January 7) due to a bearish outlook presented by brokerage firm Jefferies. 

The brokerage firm has given the Sensex listed foodtech major a ‘Hold’ rating along with a price target (PT) of INR 275. This is about 18% lower than Jefferies’ erstwhile PT of Zomato of INR 335. 

Back in November, the brokerage had given Zomato a ‘Buy’ rating, citing optimism over the foodtech major’s newly launched ‘District’ app for its ‘going-out’ business.

The new target price is almost 4% higher than the yesterday’s closing at INR 264.65

Zomato’s YTD return dropped by 8.55% and the five day return was down by the same percentage. 

In its reasoning for the bearish outlook, Jefferies sighted rising competition for Zomato’s Blinkit in the quick commerce arena. It cited aggressive moves by existing competitors along with the entry of new players in the space. It believes that these factors could pressure Zomato to increase discounting, potentially impacting profitability in the medium term.

On the other hand, the global brokerage firm Morgan Stanley maintained its ‘overweight’ rating on Zomato, keeping the same PT for the stock at INR 335. 

Despite the growing competition for Zomato, Morgan Stanley expects its focus on profitability to drive a 33% revenue CAGR during FY25-27. The company’s consistent growth in monthly active users makes the firm confident about Zomato’s future stance.

On the financial front, the company’s consolidated net profit slumped 30% to INR 176 Cr in the September quarter (Q2) of the financial year 2024-25 (FY25) from INR 253 Cr posted in the preceding June quarter, hurt by a surge in certain expense buckets.

Zomato, which has been seeing a steady growth in its PAT since Q1 FY24, saw a slump in its bottom line in Q2 even as its operating revenue grew more than 14% to INR 4,799 Cr in the reported quarter from INR 4,206 Cr in Q1 FY25.

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