Ahead of its Nifty entry, Sensex constituent Zomato Ltd is Emkay Global's top stock bet of the month. The domestic brokerage prefers EV/sales valuations for internet companies, and finds Zomato 'cheap' compared with the peer-set. Emkay Global believes that the market is underestimating the size of the quick commerce opportunity or is excessively worried about the competition. The brokerage takes additional comfort from the cash to market capitalisation ratio of 9.2 per cent and believes the Blinkit cash-burn can be comfortably absorbed with the existing balance sheet.
Zomato entered Sensex on December 23, 2024. It would be added to Nifty on March 28, 2025. The stock has fallen 18 per cent in 2025 so far.
"Existing players have scratched the surface of the addressable market for quick commerce. Modern retail formats, including e-commerce, have not materially impacted the traditional corner store ecosystem (general trade) till now. Quick commerce disrupts this segment, making it a much bigger opportunity," Emkay Global said.
Emkay said there would surely be a period of intense competition, but this will be a oligopolistic 2-3 players market, and the challengers will fade away. This is the nature of most digital markets because customer behavior generally pans out in such manner, it said.
"Blinkit has the additional moat of its quick commerce template being a complicated fulfilment model, which even existing e-commerce players will struggle to match. There may be some short-term noise, but Blinkit will ultimately emerge as a dominant player," Emkay said.
The domestic brokerage believes the profitability for Zomato may remain under pressure for a few more quarters, as competitive intensity remains high. This period will pass, though, it said,
"We also think that Zepto’s upcoming IPO, when it happens, will be a positive trigger as the company will need to take profit-positive interventions (higher fees or lower discounts) to push the offer through," Emkay Global said.
Emkay said Zomato’s 17 per cent YoY growth in food delivery was underwhelming. But it looks like a one-off – a seasonally weak quarter compounded by a general slump in consumer spending. It sees growth recovering in coming quarters as consumer sentiment recovers and the seasonality wanes.
"This, however, is a key monitorable as it would negatively impact valuations if growth does not recover," Emkay said. Post Q3 results, Emkay Global suggested a target price of Rs 310 on Zomato.