The $5-billion Indian food delivery market has been notoriously competitive from inception but in recent years that competition left two big players—Zomato and Swiggy—vying for dominance.
Over the past few years, Zomato and Swiggy have been neck and neck in terms of market share, with each holding close to 50 percent. However, that balance is now shifting.
“The Indian online food delivery market has been a steady duopoly for a while. However, that has started to change with Zomato expanding share to around 55 percent in food delivery,” brokerage firm Bernstein India said in a report.
Zomato has done this through stronger execution in the food delivery business, which grew 55 percent on-year, and investing in the quick commerce business, the Bernstein report said.
While food delivery was on par, Zomato lagged Swiggy when it came to quick commerce. The acquisition of Blinkit earlier this year, disliked by investors but seen as imperative by the company, has helped it close the gap with Swiggy in the quick commerce segment and steal a march on overall market share.
Rerating potential
Besides gaining market share, Zomato was keen to highlight that profitability was on the horizon after the company surprised the market by breaking even in the food-delivery business in the June quarter.
Zomato expects the breakeven at the company level to be driven by its efforts to lower fixed costs and drive up profitability of the food delivery business. Further, the lower requirement of investments in Blinkit has also improved the mood around the acquisition, which was questioned by investors.
Also read: Understanding Zomato's $570-million acquisition of BlinkitThe recent optimism and the sharp decline in the stock price has attracted some big-name investors such as Safir Anand and Helios Capital’s Samir Arora to the stock. Brokerages like JM Financial Services, Jefferies and HSBC India have also sounded optimistic about the company’s prospects.
Shares of Zomato have already recovered 55 percent after hitting their 52-week low of Rs 40.60 each last month. The consensus price target on the stock sits at Rs 82.20, implying an upside potential of at least 30 percent, according to Bloomberg data.
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“Zomato is our top pick for the quarter driven by acceleration of the core business, gaining market share, better profitability outlook and reduced valuation premium to global peers,” Bernstein India said.
At 12.13 pm, shares of Zomato were down 2.1 percent at Rs 63.1 on the National Stock Exchange.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
