Jefferies downgrades Zomato to ‘hold’; sees a consolidation year after the return of the multibagger in 2024
Food delivery staple in the quick commerce (QC) space- Zomato has been roped in by global retail firm Jefferies to ‘hold’ on the pre-order ‘buy’ call. Also, the Sensex-constituent target has been lowered from Rs 335 to Rs 275 apiece, implying potential gains of around 4 percent from the previous close of Rs 265.
In the previous day, the stock ended 3 percent lower as the Sensex ended at its lowest levels of the day.
The price cut was made citing fierce competition in the QC segment, which could further weigh on the company’s profitability. Although measurement is not extremely cost-effective in the case of strong manufacturing and opportunity, we are concerned about the rise of QC competition, it added.
Aggressive moves by incumbents and entry of new players will lead to discounting, which could be a threat to profitability in the medium term, the brokerage said.
Similarly, the brokerage has cut its Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) estimates for FY26 and FY27 by 12 percent and 15 percent respectively. Similarly, the brokerage also lowered the profit estimates for FY26 and FY27 by 17 percent and 18 percent, respectively.
EPS or earnings per share was reduced by 20 percent in FY26 and 21 percent in FY27.
In QC vertical-Blinkit, brokerage cut EBITDA forecast significantly over FY26E-27E; and reduce the same target frequency to 6 times.
The brokerage added that after the company’s valuation doubles by 2024, it foresees a year to consolidate Zomato. In the last one year, Zomato’s stock has risen 99 percent, and its year-to-date return is 5 percent.
Meanwhile, another brokerage Morgan Stanley continues its stance on the counter with an ‘overweight’ rating and a price target of Rs 355, implying potential gains on the stock of 34 percent. The brokerage emphasizes that the food delivery aggregator has a proven track record in terms of profitability.
The brokerage forecasts a high revenue CAGR of 33 percent during FY25-FY27 despite high competition in the space. Also, it pointed out that Zomato is showing consistent market gains in monthly performance metrics.
So, amidst this background, Zomato is Morgan Stanley’s top pick in the Indian online space.
Zomato Q2 results
In the September quarter, the company’s net profit increased by 388.89 percent to Rs 176 crore as against Rs 36 crore in the previous quarter ended September 2023. previous quarter ended September 2023.
