Global brokerage firm Morgan Stanley has increased its target price for Zomato to INR 355 from INR 278, citing the company’s potential to benefit from the growing quick commerce (QC) market in India.
This represents a 31.7% upside potential from Thursday’s closing price.
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Large profit pool by 2030 keep us overweight on Zomato – Morgan Stanley
“Rising share of quick commerce in India’s retail market, strong execution in food delivery/quick commerce, deep balance sheet, and large profit pool by 2030 keep us overweight on Zomato,” said Morgan Stanley in its report, according to ET Retail.
Morgan Stanley’s overweight rating is based on food tech giant’s favourable industry structure, market leadership, and superior unit economics in food delivery. The firm expects Zomato’s QC business, led by Blinkit, to outperform despite intense competition.
“We build in adjusted EBITDA breakeven for the next two to four quarters, implying substantial investments in aggressive expansion,” said Gaurav Rateria, Equity Analyst at Morgan Stanley. “We assume margins of 2.2% by F2027 and 5.1% by F2031, implying an annual profit pool of close to $1 billion for this business.”
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India’s q-commerce to reach $42 Bn in 20230
Further, Morgan Stanley estimates the Indian QC market to be worth $42 billion by 2030 in a base case scenario and $55 billion in a bull case. The firm believes Zomato will maintain its 40% market share despite rising competition.
To be noted that Zomato’s ability to solve for convenience, pricing, and selection will drive growth. Key catalysts for the stock include consistent top-line beats, adjusted EBITDA breakeven, and better monetization in food delivery.
However, risks include aggressive competition in QC, unit economics deterioration, regulatory risks around gig workers’ social security, and slowing top-line growth due to macroeconomic slowdown in urban consumption.
As Rateria stated, “Zomato’s current business model solves for convenience but is evolving rapidly to solve for both pricing and selection.”
Zomato’s shares closed 4.3% higher at Rs 269.60 on the BSE this Thursday.
