Macquarie has issued a warning on Zomato’s stock, suggesting it could fall by 47% to ₹96 from its current price of ₹180.60. They maintain an “underperform” rating due to the rising competition in the quick commerce sector. E-commerce companies are expanding into quick deliveries, with Blinkit identified as a key player. Despite the vast potential market in India’s retail sector, Macquarie is cautious due to increasing competitive pressures.
Macquarie has held an ‘underperform’ view on Zomato since last May, downgrading it from ‘neutral.’ Their concern mainly revolves around the upcoming launch of JioMart’s 30-minute grocery delivery service, which will start in multiple cities next month and eventually expand to 20-30 cities. Macquarie also sees potential downside for Blinkit’s margins and consensus forecasts.
Market Reaction
Following Macquarie’s report, Zomato’s stock fell by 5.1% to ₹171.25. It is now 17% below its 52-week high of ₹207.30 but has still surged over 153% from its 52-week low of ₹67.61 in June 2023. The stock has gained 162% over the past year and 44% in 2024. Despite a 7.7% drop in May, the stock had risen for 13 consecutive months since March 2023, jumping 279% from March 2023 to April 2024.
However, other brokerages like Goldman Sachs and Motilal Oswal remain positive on Zomato. In Q4 FY24, Zomato reported a significant turnaround with a net profit of ₹175 crore, up from a loss of ₹188 crore a year ago. Revenue rose 73% to ₹3,562 crore, with a 51% increase in Gross Order Value to ₹13,536 crore. EBITDA improved to ₹86 crore from a loss of ₹226 crore last year, and Blinkit achieved operational EBITDA break-even in March 2024.
Goldman Sachs has a Buy rating on Zomato, raising the target price to ₹240 from ₹170, driven by Blinkit’s growth potential. They expect Blinkit to grow at a 53% annual rate in Gross Order Value from FY24 to FY27, boosting Zomato’s overall revenue growth.
Motilal Oswal is also optimistic about Zomato’s long-term prospects. They don’t foresee intensified competition despite the entry of ONDC. Zomato is expected to achieve Adj. EBITDA break-even for Blinkit by Q1 FY25, with strong growth projected for FY24 and FY25. They predict Zomato will achieve EBITDA margins of 4.5% in FY25 and 10% in FY26, driven by substantial growth opportunities in the food delivery sector. MOSL forecasts a 38% annual revenue growth for Zomato from FY24-26.
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