Zomato shares down 10% from 52-week high. Jefferies sees stock at Rs 165

Shares of Zomato Ltd fell nearly 2 per cent in Thursday's trade, to take their losing run to the fourth straight session. With this, the stock has fallen 10.26 per cent from its 52-week high of Rs 126.10 hit on November 7.

On Thursday, Zomato fell 1.82 per cent to hit a low of Rs 113.15 on BSE, in an otherwise flattish market. Jefferies in its latest Equity Strategy report maintained its 'Buy' recommendation on the stock with a target of Rs 165.

It values Zomato food delivery at 52 times September 2025 Ebitda and Blinkit at 9 times June 2025 sales, which it said is at a steep premium to global and regional peers. It, however, noted that India consumer staples and discretionary stocks also trade at 2-3 times of their global peers.

"Strong growth an improving profitability justify the premium valuations," Jefferies said on November 21.

The foreign brokerage said Zomato turned PAT positive in Q1FY24, way earlier than guidance. Improving profitability across both food delivery and quick commerce, it said, should continue to drive sharp earnings growth.

"They have $1.4 billion in cash, which is generating yield. Cash flow was positive in the recent quarters including other income. It may see limited cash drawdown going forward. Cash levels should stay well above $1 billion," it said.

Jefferies said Food services industry in India is still under penetrated. Within Food services ($60 billion), online food delivery ($6 billion) at a 12 per cent penetration is in its early days in India and can compound at a 20 per cent compounded annual growth rate (CAGR) in the next decade, Jefferies said.

"Quick commerce is also a large $50 billion opportunity growing at a strong over 30 per cent CAGR driven by robust product-market fit," it said.

Within the duopoly, Zomato has consistently gained market shares on the back of superior execution and is the leader with a 55 per cent share, Jefferies said adding that consumer preference for convenience, rising income, younger working class population, women in workforce, incremental supply supported by aggregator ecosystem, are driving growth.

"Blinkit quickly scaled to $1 billion ARR GMV. Losses are coming down as operating leverage is working well (fixed cost higher vs food delivery due to dark store expenses). We see path to profitability on the back of expanding take rates (better mix, ad income & higher delivery fee) and declining costs (op leverage with higher dark store throughput)," it said.

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