Zomato Gets Thumbs Up from Goldman and Jefferies as Food Delivery, Quick Commerce Businesses Flourish

Dhaneshwar Prasad

Goldman Sachs and Jefferies, two major brokerage firms, have increased their stock price targets for Zomato, a prominent player in the foodtech industry.

This indicates their strong belief in the company’s potential for growth, thanks to its impressive performance in food ordering and quick grocery delivery.

Goldman Sachs, the Wall Street banking giant, has increased its price target (PT) for Zomato shares to Rs 160. This suggests a potential upside of almost 15% for investors based on the latest closing price.

In its latest report, analysts from Goldman Sachs referred to Zomato as the company with the most rapid expansion in the global food delivery and Indian internet coverage sector.

They are confident that Zomato’s dominant 55% market share in food ordering, along with Swiggy’s increasing losses, solidify its position as the top player in India’s home food delivery market.

This positions them well to capitalize on the immense untapped potential in the coming years.

Blinkit Quick Commerce Business Turns EBITDA Positive, Key Growth Driver

The Goldman report also pointed out that Zomato’s quick commerce subsidiary Blinkit has already achieved positive adjusted EBITDA in the September 2023 quarter, surpassing internal targets.

Due to the increasing demand for online grocery delivery, Blinkit’s gross order value or GOV is expected to grow at an impressive rate of 45% CAGR until FY27, which is nearly 1.5 times higher than the industry average.

The remarkable growth highlights the visionary decision of founder Deepinder Goyal to acquire Blinkit, which has unlocked tremendous revenue prospects beyond the realm of food ordering.

Zomato Among Goldman’s Top Picks to Tap ‘Affluent India’ Growth Story

Highlighting its confidence in Zomato’s potential, Goldman Sachs included India’s most valuable unicorn in its list of top investment ideas that are well-positioned to capitalize on the growth of affluent households in India.

According to estimates, the number of households in India with an annual income of over Rs 8 lakh is expected to double from the current 60 million to 100 million by 2027. This growing affluent class will play a crucial role in boosting the demand for Zomato’s premium offerings.

Jefferies Sets Street-High PT of Rs 175 as Zomato Widens Competitive Moat

Meanwhile, Jefferies, a global financial services group, has increased Zomato’s target price to a Street-high of Rs 175, as the leading food delivery platform in India continues to strengthen its competitive advantage.

Jefferies analysts pointed out that Zomato’s adjusted EBITDA losses have significantly decreased in the first half of 2023, thanks to improved unit economics. Despite the sluggish macro environment, Zomato experienced a remarkable surge of over 55% in orders.

Strong growth in both order values and frequency across major cities and smaller towns demonstrate the platform’s expanding network effects and customer loyalty. Jefferies believes that the ability to monetize will continue to expand in the future.

Zomato on Track to Turn Profitable by Mid-2023 Boosting Valuation Appeal

In addition, Jefferies predicts that Zomato’s adjusted EBITDA is expected to become positive by mid-2023, which is at least 3 quarters earlier than its internal March 2024 guidance.

The expedited timeline to profitability greatly enhances the potential for significant returns on investment in Zomato.

Analysts predict that once the market leader consistently generates net profits by leveraging its dominant position in a food delivery market with only two major players, there is a high chance of a significant increase in its valuation.

Goldman and Jefferies both highlight that Zomato provides a distinctive opportunity to tap into India’s thriving digital economy, considering the relatively low level of consumer tech adoption. The sustained success despite a challenging funding period and decrease in consumption validates the strength of its business model.

With the potential for increased revenue and the possibility of turning a profit in the near future, the investment case for India’s leading internet IPO appears quite compelling. With growing confidence in its execution skills, it is highly likely that the Zomato stock will maintain its impressive performance.

Share This Article
Former Sony professional turned multi-business owner and stock investor, Dhaneshwar leverages his MBA to produce market, IPO and biz content and personal investments on Indimarket.in.
Leave a comment