Axis Capital, a brokerage firm, has initiated coverage of foodtech giant Zomato with a ‘buy’ rating, noting that the company provides a “compelling investment opportunity” to gain exposure to the country’s rapidly growing ecommerce market.
The brokerage has additionally established a price target (PT) of INR 254 for the stock, suggesting an upside of nearly 36% from its last close on Thursday (May 23).
The price also indicates an enterprise value-to-sales (EV/sales) ratio of 8.3X by June 2026. Axis stated that while the multiple isn’t low-cost, it’s fitting considering Zomato’s growth trajectory, execution, and rarity premium, particularly as it stands as the sole listed player with exposure to India’s broader ecommerce sector.
It’s important to highlight that Zomato achieved its fourth consecutive profitable quarter, reporting a net profit of INR 175 Cr in Q4 FY24, primarily driven by the significant expansion of its quick commerce business, Blinkit.
Continue Exploring: Zomato’s Q4 net profit surges 27% quarter-over-quarter to INR 175 Cr
In March 2024, Blinkit achieved positive adjusted EBITDA. Furthermore, its gross order value (GOV) for Q4 witnessed a notable 97% year-on-year (YoY) and 14% quarter-on-quarter (QoQ) growth, amounting to INR 4,027 Cr.
Conversely, Zomato’s food delivery business experienced a decline in gross order value (GOV) on a quarter-on-quarter (QoQ) basis, dropping to INR 8,439 Cr for the quarter.
Despite the subdued growth in the food delivery sector, Axis anticipates Zomato’s market share in this segment to expand to 54% from the present 50%, leading to a compound annual growth rate (CAGR) of 16% in the sector’s gross order value (GOV) by FY30.
The brokerage observed that Zomato is unlikely to substantially raise the commission it charges restaurants and brands, as they may resist such increases. Nonetheless, Axis suggests that Zomato could boost its revenue through higher platform fees for users and increased advertising revenue from restaurants and brands, thereby bolstering the company’s growth and profitability.
Continue Exploring: Bernstein raises Zomato’s price target to INR 230, upholds ‘OUTPERFORM’ rating following strong Q4 results
Furthermore, the brokerage highlighted that the food delivery segment remains a significant untapped opportunity.
Regarding quick commerce, Axis forecasts that Blinkit’s gross order value (GOV) will achieve a compound annual growth rate (CAGR) of 38% between FY24 and FY30, reaching $10.5 billion.
The brokerage indicated that Blinkit’s dominant position in the segment is projected to be fortified through effective execution of rapid expansion, a broader range of products, and synergies between Hyperpure and Blinkit, among other factors.
Continue Exploring: Blinkit more valuable than Zomato’s food delivery business: Goldman Sachs
In fact, the brokerage has placed its confidence in Zomato’s robust market dominance in both food delivery and quick commerce, even in the face of Swiggy‘s early advantage in both sectors.
“Analyzing Zomato and Swiggy across different strategic metrics reveals that Zomato’s market leadership in both crucial segments, despite Swiggy’s early advantage, stems from its effective execution,” stated Axis.
Presently, out of the 26 analysts covering Zomato, 22 hold a ‘buy’ or higher rating on the stock, with an average price target (PT) of INR 207.88.
Zomato’s shares closed today’s trading session approximately 0.9% higher at INR 187.15 on the BSE.
Continue Exploring: ICICI Securities raises Zomato’s price target to INR 300, citing strong growth and profitability metrics