Zomato Shares Rally Over 4% As HSBC Raises Target To INR 330

Shares of foodtech major Zomato climbed over 4% in early trading hours today (October 8) after brokerage HSBC reaffirmed its ‘buy’ call on the stock, citing the company’s lead over Swiggy in terms of both growth and profitability across food delivery and quick commerce businesses.

The stock jumped as much as 4.4% to INR 278.15 apiece on the BSE after HSBC raised its price target to INR 330 apiece from INR 260 per share earlier. This would imply an upside potential of almost 24% from the stock’s previous close.

Notably, shares of the Deepinder Goyal-led company have rallied over 122% on a year-to-date basis. By comparison, Sensex has gained a little under 13% during this period.

The bull-run in the stock’s price has been fueled by the company’s improving profitability and growth in its top line. Zomato saw its consolidated net profit jump multifold to INR 253 Cr in the June quarter of the financial year 2024-25 (Q1 FY25) from INR 2 Cr in the year-ago period.

Meanwhile, revenue from operations jumped 74% to INR 4,206 Cr in Q1 FY25 from INR 2,416 Cr in the corresponding quarter last year. 

Analysts at HSBC noted that Zomato continues to dominate the food delivery and quick commerce markets, outpacing IPO-bound Swiggy. Although the competition intensity in the food delivery market seems to be stabilizing, there’s enough room for Zomato to improve its take rates.

On the other hand, Swiggy, which recently received approval from its shareholder to increase the fresh issue component of its IPO to INR 5,000 Cr, lags behind the Deepinder Goyal-led company in the food delivery market across parameters such as active user base, gross order volume, and order frequency growth, the brokerage said.

It further underscored that Swiggy’s quick commerce arm Instamart is struggling to keep pace with Zomato’s Blinkit, but it still has scope to recover in terms of market share and profitability.

Blinkit Leads The Quick Commerce Race

As of Q1 FY25, Blinkit achieved an annual gross merchandise value (GMV) of $2.4 Bn, up 84% from Instamart’s $1.3 Bn, driven by its outperformance across key metrics such as dark store additions, average order volume scale and orders per day per store.

Over the last two years, Blinkit has opened 260 dark stores as compared to 121 stores added by Instamart. At the end of Q1 FY25, Blinkit operated 639 dark stores while Swiggy had 581.

Blinkit clocked a GOV of INR 4,923 Cr during the quarter — 1.8X higher than Swiggy Instamart. Its take rates were also higher by 430 basis points than that of Instamart.

In a recent research note, Morgan Stanley noted that Zomato commanded a market share of 58% in the food delivery segment, up from 54% in FY22. It is also ahead of Swiggy in terms of contribution margins and adjusted EBITDA due to its scalability.

Meanwhile, Swiggy Instamart continues to underperform as compared to Zomato’s quick commerce arm Blinkit, with difference in average order volume and take rate driving the margin difference. While Swiggy Instamart posted an adjusted EBITDA loss of -11.7% in Q1 FY25, Blinkit almost reached an EBITDA break even (-0.1%), the brokerage said.