Global brokerage firm Jefferies has downgraded shares of Zomato to a 'hold' call, citing the sharp run-up in the stock through 2024 and concerns over rising competition in the quick commerce space.
After Zomato’s shares more than doubled in value in 2024, analysts at Jefferies predict that 2025 could be a breather year, with the stock likely shifting gears into a phase of price consolidation. Factoring that in, Jefferies also slashed its price target for Zomato by 18 percent to Rs 275.
Weighed down by the subdued outlook for the stock, shares of Zomato plunged 5 percent in early trade on January 7. At 09.32 am, shares of Zomato were trading at Rs 254.90 on the NSE. With losses in today's session, the stock has lost nearly 16 percent of its value in the past month.
While the brokerage added that the stock's valuations are not 'excessively expensive' in the face of its strong execution and opportunity, it is the rising competition in the quick commerce space that worries them. The brokerage cautioned that aggressive strategies by existing players and the entry of new competitors could lead to higher discounting, posing risks to Zomato's medium-term profitability.
In addition to Zomato's Blinkit, competitors like Swiggy's Instamart, Zepto, Amazon, and others are actively competing for a share of the quick commerce market.
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As a result, Jefferies has sharply reduced Blinkit's EBITDA forecast for FY26-27 and halved its target multiple for Blinkit to 6x. For Zomato overall, the brokerage cut its EBITDA estimates by 12 percent for FY26 and 15 percent for FY25, alongside profitability estimates reduced by 17 percent for FY26 and 18 percent for FY27. Earnings Per Share (EPS) projections were also slashed by 20 percent for FY26 and 21 percent for FY27.
In a contrasting move, Morgan Stanley reiterated its 'overweight' rating on Zomato, maintaining a price target of Rs 335 for the stock. The brokerage also singled out Zomato as its top pick within India's internet sector.
Morgan Stanley anticipates Zomato's ongoing focus on profitability and its improving growth visibility to drive a 33 percent revenue CAGR over FY25-27, despite the intensifying competition.
The firm remains confident in Zomato's solid track record of profitability and its consistent growth in monthly active users.
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