Shares of Zomato gained over 2 percent on Tuesday as HSBC raised its target price for Zomato to Rs 330 from Rs 260 earlier while maintaining a buy rating. The brokerage noted that competitive intensity in the fast delivery market appears to be stabilizing, providing Zomato with opportunities to improve its take rates.
In the quick commerce space, Swiggy is facing challenges in keeping pace with BlinkIt, Zomato's quick-delivery platform, the brokerage noted. Analysts at HSBC highlighted that Swiggy still has room to expand its take rates and improve margins.
Additionally, analysts raised estimates for Zomato’s quick commerce segment and factored in the company’s plans for its "going out" business.
Despite the threat from Swiggy going public soon, Motilal Oswal maintained a buy call on Zomato with a target price of Rs 320 as it believes that Swiggy currently lags Zomato on key metrics. However, analysts noted that its innovation DNA and possible improvement in execution could unlock massive value.
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In its latest report comparing the two food aggregators, Motilal Oswal highlighted that Zomato acquired Blinkit to strengthen its instant grocery delivery segment while Swiggy launched Instamart, which has grown to become a significant revenue driver. However, a slower expansion compared to peers means Instamart is losing some market share to Blinkit as well as Zepto.
Blinkit vs Instamart: Bigger Orders, Better Margins
As of 1QFY25, Instamart operated 557 active dark stores across 32 cities in India, while Blinkit ran 639 dark stores in 44 cities. Blinkit outperformed Instamart with a gross order value (GOV) of Rs 4,923 crore, about 81 percent higher than Instamart's GOV for the quarter.
Blinkit also maintained a higher take rate of 19.1 percent compared to Instamart's 14.8 percent. Additionally, Blinkit's average order value (AOV) was notably higher than that of Instamart.
In terms of profitability, Blinkit led with an adjusted EBITDA margin of -0.1 percent versus Instamart's -11.7 percent, with the differences in average order value (AOV) and take rate driving this margin gap.
"However, we are at the very beginning of the quick commerce race, and there are enough opportunities for players to differentiate themselves, and it is too early to call this game," said MOFSL.
Zomato Hits the Sweet Spot
According to analysts, Zomato's food delivery business is stable, and Blinkit offers a generational opportunity to participate in the disruption of industries such as retail, grocery and e-commerce.
Their estimates imply FY24-27 revenue CAGR of 55 percent and PAT margin of 4.3, 8.7, 13.2 percent in FY25, FY26, FY27, respectively.
At 12:55 pm, Zomato shares were trading more than 3 percent higher at Rs 275 on the National Stock Exchange (NSE). The stock has risen around 120 percent so far this year, outperforming benchmark Nifty's returns of 15 percent by a huge margin
In the past 12 months, the counter has zoomed over 164 percent, more than doubling investors' capital. In comparison, Nifty's gained around 28 percent during this period.
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