Zomato’s shares have undergone a remarkable resurgence in recent weeks, reaching a new peak of INR 84.50 during intraday trading on Thursday (July 13), marking a 52-week high for the stock.
The current share price is 6% higher than Wednesday’s closing price of INR 77.50. The surge in intraday share price can be attributed to a significant increase of 1.74 times in share trading volume on Thursday.
To provide some context, Zomato’s share price has experienced a growth of 10.4% in the last five days. Moreover, the stock has witnessed a remarkable increase of 54% since the beginning of 2023.
A contributing factor to the recent resurgence of Zomato is the optimistic outlook from brokerages, who believe the company will capitalize on its market share in the upcoming quarters and achieve profitability. Kotak Institutional Equities, for example, indicated that Zomato currently holds a GMV market share of 55%, surpassing its competitor Swiggy’s share of 45%. This reflects Zomato’s strong execution and ability to retain customers, even as discounts are reduced on the platform. Kotak has maintained its ‘Buy’ rating on Zomato, with a price target of INR 95.
Likewise, Citi has observed that Zomato is ahead in terms of profitability compared to Swiggy. Citi has reaffirmed its ‘Buy’ recommendation on Zomato, setting a price target of INR 84 per share.
In a report earlier in June, JM Financial described Zomato and Swiggy as “indispensable” to the restaurant industry, making reference to the Online Food Delivery Network Companies (ONDC). The report highlighted that food delivery aggregators account for approximately one-third of the revenue generated by restaurants in India. JM Financial expressed the view that with no significant competition on the horizon, both Zomato and Swiggy are becoming essential components of the ecosystem.
Read More: Food delivery aggregators contribute one-third of eateries’ revenue: JM Financial report
Recently, Christopher Wood, the global head of equity strategy at the brokerage firm Jefferies, made headlines as he increased his investment in Zomato by another percentage point.
Read More: Zomato’s rising stock price draws Jefferies’ Christopher Wood for increased investment
Despite the food delivery market being dominated by just two major players, they have faced challenges in achieving strong unit economics in the past. This struggle can be attributed to their heavy reliance on discounts and high delivery costs. However, in recent months, both Zomato and Swiggy have implemented various strategies to address this issue. For instance, Swiggy introduced a fixed platform fee of INR 2 per order, while Zomato relaunched its Zomato Gold loyalty program. These initiatives aim to enhance the companies’ unit economics and create a more sustainable business model.
In May, Swiggy, a direct competitor of Zomato, made a noteworthy announcement stating that its food delivery business had achieved profitability. This achievement took into account the majority of operational costs associated with the business.
Read More: Swiggy’s strategic initiatives pay off as food delivery business turns profitable
In addition to Zomato, Paytm, a prominent fintech giant, has experienced a significant rally in recent months. After a challenging performance in 2022 in the stock market, the company made a strong comeback in 2023. Presently, Paytm’s shares are being traded at INR 857.91 per share, nearing its 52-week high of INR 915.