Shares of Zomato Ltd continued to weaken amid the rising selling pressure in the broader markets. The Multibagger new age stock cracked nearly 5 per cent during the trading session on Monday but a number of brokerage firms remain positive on the counter ahead of quarterly earnings and the much awaited IPO of its largest peer Swiggy.
Zomato shares crashed 4.88 per cent to Rs 261.75 on Monday, with its total market capitalization falling below Rs 2.30 lakh crore mark. The stock had settled at Rs 275.20 in the previous trading session on Friday. The stock has cracked more than 12 per cent from its 52-week high at Rs 298.20, hit two week earlier.
Kotak Institutional Equities expects Zomato to report healthy Q2FY25 performance, driven by 23 per cent YoY growth in food delivery GMV and 114 per cent YoY growth in Blinkit GMV. "We expect both businesses to report sequential CM improvement, driven by better take rate and advertising income," it said.
Operating leverage benefits in food delivery will be visible, although large store additions in Blinkit may keep its Ebitda performance similar to 1Q, said Kotak. The domestic brokerage has retained its 'buy' rating on the stock with an unchanged fair value of Rs 315. However, it has flagged higher competitive intensity and poor capital allocation are key risks to the call.
Zomato leads Swiggy across average order value (AOV), food delivery gross order value (GOV), adjusted revenue growth and orders as well as profitability in the food segment, said Elara Capital. However, the take rates are almost similar for both at an average of 24.5 per cent, it said.
Zomato outperformed on higher AOV, adjusted Ebitda and GOV CAGR, said Elara. "Swiggy will have to gain market share in food delivery as well as quick commerce side coupled with good execution on profitability to move closer to Zomato’s adjusted Ebitda margin in the food segment," it added with a 'buy' rating on Zomato with a target price of Rs 320.
Swiggy, the arch rival of Zomato, is likely to launch its Rs 10,350 crore IPO in the coming months. Swiggy, which is yet to become profitable, recently launched its 10-minute meals and beverages delivery service Bolt in six major cities — Hyderabad, Mumbai, Delhi, Pune, Chennai, and Bangalore.
In its recent report last week, Morgan Stanley said that investors will see both positives and negatives for Zomato. On the negative side, if Swiggy were to use its potential new capital to focus on market share, it could mean increased competition for Zomato.
"However, if Swiggy were to focus on growing profitability in a more mature business segment of food delivery (steady improvement in margins) with incremental capital deployed in fast-growing Quick Commerce market, then that would be in line with market expectations for Zomato," it said.
Prosus and SoftBank-backed food delivery company Swiggy had filed confidential papers with the regulator for an IPO in April this year. The food tech major’s shareholders on October 3 approved the resolution to increase the size of the primary issue of its IPO from Rs 3,750 crore to Rs 5,000 crore at the Extraordinary General Meeting (EGM) held on October 3.
Morgan Stanley has an 'overweight' rating on Zomato with a target price of Rs 278. Among other global brokerage firms, CLSA has an 'outperform' rating on Zomato with a target price at Rs 283.90 apiece.