Zomato Trades Higher As Jefferies Sees Up To 29% Upside, Highlights Growth Catalysts

Zomato shares were trading marginally higher on Monday after Jefferies maintained a ‘buy’ rating on the stock and set a base case target of Rs 335, indicating a potential upside of 29 per cent from Friday’s close.

Zomato is a play on the growing food services industry in India and increasing adoption of digital commerce. With only around 20mn monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth, the brokerage said.

Blinkit is the market leader in the fast-growing quick-commerce space and is set to see sharp margin improvement in the steady-state, it added.

In its base case, Jefferies anticipates a compound annual growth rate (CAGR) of approximately 20 percent in delivery revenue from FY24 to FY27. As Zomato scales its operations, the brokerage expects unit economics to improve steadily through cost efficiencies and increased customer willingness to pay for convenience.

“We value Zomato’s delivery segment at 55 times its two-year forward adjusted EBITDA, quick commerce at 12 times its two-year forward sales, and the going-out business at 2.5 times its gross order value (GOV),” it said.

In its bullish case, Jefferies has put the target price at Rs 360, implying an upside of around 40 per cent as it projects a 25 percent CAGR in delivery revenue from FY24-27E. On the flipside, the brokerage has pegged the target price of Rs 200 in the downside scenario.

Jefferies listed several catalysts that are likely to move the stock in the near term. Positive factors include a favorable macroeconomic environment, a rise in discretionary spending, rapid adoption of digital commerce, and better-than-expected trends in average order values (AOVs) and unit economics. Additionally, successful expansion into the grocery segment could further drive growth.

Conversely, potential downsides include increased competition from new market entrants, slower-than-anticipated market growth, and adverse regulatory changes affecting platform businesses.

Zomato shares were trading largely flat at Rs 259.85 on the National Stock Exchange (NSE). The stock has zoomed 108 per cent so far this year, outperforming Nifty’s returns of 16 per cent. In the past 12 months, the stock has skyrocketed over 150 per cent, more than doubling investors’ capital, while Nifty climbed 28 per cent during the same period.