While BofA Securities has adopted a more circumspect “Neutral” stance, setting a price target of INR72 ($0.96), and warning that ONDC could become a significant risk if it continues to scale up, it may still “serve as a key platform in the food delivery space,” Motilal Oswal has reiterated a “Buy” rating on Zomato stock, claiming it has found “no evidence” of an adverse impact from the Open Network for Digital Commerce.
Zomato shares recovered after dropping about 8% over the previous three trading days as a result of a report by Motilal Oswal that retained a ‘Buy’ rating on the stock, disputing accusations of an immediate negative impact from ONDC on the meal delivery service.
“At this time, the information is insufficient to change our underlying assumptions about Zomato. In a report, Motilal Oswal stated, “We retain our BUY recommendation on the company and a TP of Rs 70, representing a potential upside of 15%.
The brokerage company claimed that it did not see direct ordering as being a significant industry risk. However, it has admitted that ONDC “only if it meaningfully scales up across categories, allowing it to achieve greater efficiency compared to the walled gardens” might pose a challenge to Zomato.
“On ONDC applications, only the first order’s delivery is free. If a restaurant offers a cheap or free delivery, they are responsible for covering the cost (perhaps to gain a competitive edge).In case of a discounted /free delivery, this cost has to be borne by the restaurant (possibly to increase competitive advantage against incumbent duopoly) and is not sustainable,” analysts at Motilal Oswal said.
Additionally, it claimed that in some circumstances, after the initial free delivery, shipping fees are greater than those of Zomato or Swiggy. Additionally, it stated that the cost disparity is unlikely to be sufficient to overcome the incumbents’ well-oiled delivery system, a larger range of food alternatives, and early mover advantage.
However, it was noted that if ONDC keeps growing over time, this might develop into a serious issue since it would increase delivery effectiveness and make the system sustainable.
On its platform, the Open Network for Digital Commerce (ONDC) touts 12 million merchants that offer their goods and services for sale and resale.
BofA Securities has set a price objective of Rs 72 while maintaining a ‘Neutral’ view on Zomato. The international brokerage views ONDC as a crucial platform in the field of food distribution.
The brokerage business also mentioned that high-end Zomato/Swiggy consumers are picky about delivery timeframes but may not be overly price sensitive. It went on to say that Zomato/Swiggy have an advantage on the technical front, giving them more control over how much time delivery boys are used.
