A critical market drift comes as Zomato’s shares plunge by 5% to settle at ₹253 today as Jefferies cut its rating for the quick-commerce firm from “buy” to “hold” due to higher competition in this space that now threatens the growth outlook of the stock.
PC: Moneycontrol
Jefferies lowered its target price for Zomato, from ₹335 to ₹275, thereby leaving upside potential at a paltry 1% over the current trading price. This is basically some kind of downgrade in view of Zomato’s inability to sustain its growth trajectory while facing a competitive landscape. Jefferies believes that 2025 could be a consolidation year for Zomato, meaning that it is unlikely to hold on to its position in the market.
Jefferies also made significant cuts to its financial projections for Zomato as part of the rating downgrade. The brokerage reduced its EBITDA estimates by 12% for FY26 and 15% for FY27. In addition, it reduced net profit estimates by 17% for FY26 and 18% for FY27. It further reduced the EPS expectation for FY26 and FY27 by 20% and 21%, respectively. The downward revisions in EPS reflect a more conservative outlook about Zomato’s financial health and future profitability.
The quick commerce market, which involves lightning-fast deliveries of food and groceries, has very competitive edges to it. Aggressive new entrants and incumbent players are trying to capture as much market share as possible, intensifying the challenges Zomato is facing. Since consumers increasingly expect faster delivery options, maintaining customer loyalty is a big issue; hence, how Zomato can successfully navigate this quickly changing landscape continues to be under scrutiny.
Despite the downtrend in its stock, Zomato has shown resilience in its recent financial performance. The company reported a 68.5% quarter-on-quarter growth in operating revenue for the second quarter of the current fiscal year at ₹4,799 crore, compared with ₹2,848 crore in Q2 FY24. The company saw a 4.8X increase in net profit to ₹176 crore for the quarter ending September. These results represent the company’s ability to grow in a competitive market.
While Jefferies remains conservative, this is not all that the experts think. The ‘Overweight’ rating was given to the stock by Morgan Stanley. As for the price target, this has been established at ₹355. The same targets are far above the level maintained by Jefferies. A target above here shows some hopes from Zomato, yet to be taken seriously by several experts. Then there’s Bernstein which added this stock in a list of stocks for which investors must be greedy; in their case, part of their Indian strategy.
As of the latest trading session, the stock price of Zomato stands at ₹253.3, with a total market capitalization of around ₹2,44,395 crore or approximately $29 billion. The stock has witnessed high volatility in the last one year. The 52-week high for the stock was recorded at ₹304.7 on December 9, 2024, and the 52-week low at ₹121.6 on January 18, 2024. This kind of fluctuation only speaks of the uncertainty of the stock as it struggles with the dynamic nature of the market.
The latest downgrade from Jefferies is a very clear signal to the investors regarding all the challenges Zomato faces in a competitive market. They demonstrate strong revenue growth, but there are conflicting opinions about the outcome. This complex landscape will be closely watched as Zomato fights its battles for market share and profitability, as stakeholders want an understanding of its trajectory in this evolving food delivery space.
