Stock in Action – Zomato

Tanushree Jaiswal Tanushree Jaiswal

Last Updated: 25th June 2024 - 12:48 pm

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Zomato Shares Movement of the Day

 

Highlights

1. Zomato stock is currently outperforming its competitor Swiggy with impressive growth rates.
2. Zomato growth comparison with Swiggy shows higher gross order value increase.
3. Zomato vs Swiggy reveals Zomato's superior performance in both food delivery & quick commerce.
4. Zomato financial performance has shown significant improvement with positive EBITDA in FY24.
5. Zomato share price target set by CLSA is Rs 248 per share.
6. Zomato investment analysis indicates strong potential due to high market penetration & growth.
7. Zomato market share in food delivery has reached nearly 57%, surpassing Swiggy.
8. Zomato EBITDA positive result marks key milestone in company's financial turnaround.
9. Zomato quick commerce segment has outperformed, driving overall growth.
10. Brokerage ratings on Zomato remain bullish, with multiple firms recommending 'buy' rating.


Why Zomato Stock is in Buzz?

Zomato's stock has recently been center of attention due to several factors indicating its robust growth compared to its competitors, notably Swiggy. Foreign brokerage CLSA highlighted that Zomato is outpacing Swiggy on key growth parameters, which has led to increase in their price target for Zomato. Zomato's shares target price has been consistently raised since May 2023, reflecting confidence in company's performance. Zomato's significant year-on-year growth in gross order value (GOV) & revenue, along with its positive EBITDA, further underscores its superior performance. Additionally, new features & improvements in user experience, such as 'LIVE order count,' have added to stock's appeal, making it hot topic among investors & analysts.

Why Should I Invest in Zomato?

1. Superior Growth Metrics
Zomato's overall growth metrics are impressive. For FY24, Zomato's gross order value (GOV) grew by 36% year-on-year (YoY), surpassing Swiggy's 26% growth. Furthermore, Zomato's adjusted revenue grew by 55.9% YoY, significantly higher than Swiggy's 24% YoY revenue growth. This demonstrates Zomato's ability to capture market share & drive higher sales.

2. Positive Financial Performance
Zomato reported positive EBITDA of $5 million for FY24, significant turnaround from its previous financial positions. This positive EBITDA is strong indicator of Zomato's operational efficiency & profitability. In contrast, Swiggy's trading losses reduced to $158 million, but it has yet to achieve positive EBITDA.

3. Market Leadership
Zomato holds dominant position in food delivery & quick commerce segments. Its market share in food delivery sector has reached almost 57%, reflecting its strong competitive edge. Zomato also has larger number of active delivery partners (418,000) & more active dark stores (526) compared to Swiggy, enhancing its operational capabilities & customer reach.

4. Strategic Valuations & Growth Potential
CLSA values Blinkit, Zomato's quick commerce arm, at 30% discount to 67 times PE multiple used for DMart, considering higher profitability & stable business model of DMart. This strategic valuation reflects growth potential & market opportunities for Zomato in quick commerce space. With low penetration levels, rising incomes, & young population in India, Zomato is well-positioned for sustained long-term growth.

5. Innovations & Customer Engagement
Zomato continues to innovate & improve its platform to enhance customer experience. recent introduction of 'LIVE order count' feature allows users to see real-time order numbers, increasing transparency & engagement. Such initiatives can drive higher customer satisfaction & loyalty, contributing to long-term business growth.

Brokerage Views on Zomato Shares

1. CLSA
CLSA maintains 'Buy' rating on Zomato with target price of ₹248 per share. They emphasize Zomato's faster growth compared to Swiggy, noting that Zomato's overall GOV & revenue growth rates are significantly higher. CLSA highlights Zomato's positive EBITDA as key indicator of its financial health & operational efficiency.

2. UBS
UBS also has 'Buy' call on Zomato stock with target price of ₹250 per share. They recognize Zomato's robust GOV growth & superior performance in quick commerce segment. UBS notes higher number of active dark stores & delivery partners as critical factors contributing to Zomato's competitive advantage.

3. Morgan Stanley
Morgan Stanley retains 'overweight' rating on Zomato with target price of ₹235 per share. They acknowledge potential for increased competitive intensity in segment but remain optimistic about Zomato's market position & growth prospects.

4. Emkay Global Financial Services
Emkay Global maintains 'Buy' rating on Zomato with target price of ₹230 per share. They attribute Zomato's higher growth rate to strong performance of its quick commerce segment. Emkay highlights Zomato's multibagger returns of over 172% in one year, showcasing its impressive financial performance & market traction.

What Should Investors Do?

Given strong performance indicators & positive outlook from multiple brokerage firms, investors should consider 'Buy' stance on Zomato shares. stock has shown significant growth potential, with target price range of ₹230 to ₹250 per share from leading brokerages. Investors should monitor market trends & Zomato's continued performance in food delivery & quick commerce segments. Potential risks include subdued urban consumer sentiment, high competitive intensity, & regulatory challenges, which should be factored into investment decisions. However, overall outlook remains bullish, & Zomato's innovative approach & market leadership position make it compelling investment opportunity.
 

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Disclaimer: Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.

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