
Zomato Ltd shares may have recovered 9 per cent from January 13 closing, they are still down 17 per cent from their December 2024 high of Rs 304.50. There are growing investor concerns about accelerated investments in Blinkit’s supply chain - dark store and warehouse network, and rising competitive pressures in quick commerce (QC). This has sent Zomato shares tumbling of late.
JM Financial said while such concerns have merit, the impact on Blinkit’s adjusted Ebitda margin as percentage of gross order value (GOV) may not be meaningful, and the deviation from near-term guidance of break-even levels will be limited to 100 basis points as percentage of GOV. It could be temporary as well, the domestic brokerge said while suggesting that the recent pessimism on Zomato shares is an opportunity for the long-term investors.
"We believe supply chain investments should help Blinkit better compete with emerging competition," it said while calling Zomato as the most resilient company in the quick commerce space due to its strong market leadership, demonstrated history of strong execution capabilities, and robust balance sheet.
"We, therefore, strongly suggest that long-term investors should use the recent market pessimism in the stock to build sizable positions," it said.
Zomato vs Swiggy
JM Financial said it prefers Zomato over Swiggy amongst the two listed hyperlocal delivery players, post the recent correction in both stocks. It suggested a 'Buy' on Swiggy with a target price of Rs 550. For Zomato, JM Financial suggested a 'Buy' with a target price of Rs 300.
"Zomato is a clear market leader (in GOV/revenue terms) across all its operating business segments. It is also well ahead of the competition on the profitability front across business segments. Moreover, it is the only major hyperlocal delivery company in the country that, at a consolidated level, is currently generating free cash flows, without having compromised on topline growth," JM Financial said.
This, the brokerage said, indicates the strong execution capabilities of the management, giving the confidence that Zomato is the best placed company to fend off emerging competitive threats in quick commerce.
On Friday, Zomato shares were up 2 per cent at Rs 246.85 on BSE.
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