Shares of Zomato hit 52-week high of Rs 105 on September 18 after rising nearly 2 percent in trading on the NSE. However, the stock ended 0.87 percent lower to Rs 102.05 apiece against its previous close.
This gain was attributed to investors’ growing confidence in the company, driven by Zomato demonstrating visibility in revenue growth and margin expansion.
According to a Jefferies report, most investors complimented CFO Akshant Goyal during the company’s US roadshow, for delivering on promises made a year ago. “Scepticism was high back then, while the exact opposite is true now,” Jefferies said in the note.
Zomato CFO sees its food delivery value growing at 20-25 percent, and the new quick commerce business at a whopping 60 percent CAGR. Food delivery has a “large growth runway as restaurants contribute only 10 percent of food consumption in India. Zomato (& Swiggy) is enabling growth by sharing local insights with restaurants which improve cuisine diversity and drive local demand,” Jefferies said.
On the other hand, Zomato’s quick commerce could become even bigger than food delivery in India’s sizable retail opportunity.
In addition, Jefferies expects food margins to expand to 5% gradually, while quick commerce will likely break-even in four quarters.
Jefferies, which has a ‘buy’ rating on the food delivery platform with a target price of Rs 130, says that with only ~20mn monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth. But adds that this may come at the cost of near-term profitability. Post its IPO, the report adds, the company has shifted its focus from survival to being future-ready.
