Zomato’s stock witnessed a 1.7 percent surge in trading activity on the NSE on September 18. This noteworthy uptick can be primarily attributed to the increasing faith that investors have placed in the company, bolstered by Zomato’s impressive showcase of revenue growth and margin expansion prospects.
As per a Jefferies report, the majority of investors praised CFO Akshant Goyal during the company’s US roadshow for effectively fulfilling commitments made a year prior.
“Scepticism was high back then, while the exact opposite is true now,” Jefferies said in the note.
The Zomato CFO anticipates a 20-25 percent increase in the value of its food delivery segment, while the new quick commerce business is expected to achieve a remarkable 60 percent Compound Annual Growth Rate (CAGR). Jefferies emphasized that the food delivery sector has significant growth potential in India, with restaurants accounting for only 10 percent of total food consumption. Zomato (along with Swiggy) is facilitating this growth by sharing local insights with restaurants, leading to improved cuisine diversity and increased local demand.
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Conversely, Zomato’s quick commerce sector has the potential to surpass even the food delivery segment in India’s extensive retail market.
Furthermore, Jefferies anticipates a gradual expansion of food margins to reach 5%, with quick commerce expected to achieve break-even within four quarters.
Jefferies, maintaining a ‘buy’ rating on the food delivery platform and setting a target price of INR 130, suggests that Zomato, currently catering to approximately 20 million monthly transacting users, possesses a substantial opportunity for customer acquisition and revenue expansion. However, the report notes that this growth trajectory might come at the expense of short-term profitability. Following its IPO, the company’s focus has shifted from immediate survival to preparing for the future, as per the report.
At 11:24 am, Zomato’s shares were being traded at INR 104.10, marking a remarkable 96 percent increase over the past six months.