JM Financial raises target price for Zomato by 30% to Rs 260

Brokerage firm JM Financial raised its price target on Zomato to Rs 260 from Rs 200 while maintaining a Buy rating on account of the company’s quick commerce business Blinkit’s exponential growth.

“Zomato’s Blinkit quick commerce business is growing rapidly with no signs of slowing. Recent reports indicate the company will increase investments, likely after Blinkit achieves break-even EBITDA in 1QFY25. This will likely lead Blinkit to surpass Zomato’s food delivery business in size and build long-term competitive advantages.” says Swapnil Potdukhe of JM Financial.

“Zomato continues to be one of our preferred picks in the listed Internet space as we believe it is well positioned to benefit from robust industry tailwinds for the hyperlocal delivery businesses. Its balance sheet also remains strong with net cash of Rs 12000 crore as of Dec 2023 (as against Rs 11800 crore in September 2023).” the brokerage firm added.

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The brokerage firm further believes that Blinkit in the long term will command premium profit multiples to Zomato’s own food delivery business as it is relatively more sticky and a play on retail commerce.

As per the report, expansion of dark-store network, retail category addition and product depth penetration are the key near-term business priorities for Zomato, that will lead to the growth as well as sustenance of the company.

With a leading market share in Delhi NCR and nearby cities, access to a substantial captive base of approximately 60 million annual transacting customers in Zomato’s food delivery vertical, an experienced leadership team in the hyper-local delivery space, and a strong balance sheet, Blinkit stands out as a formidable player in the quick commerce sector.

Blinkit faces challenges such as limited geographic presence, particularly in cities across West and South India, supply side disruptions like product shortages and rider strikes, and high levels of competitive intensity, which are a few key risks to the company as per JM Financial.

Zomato is currently trading at its 52-week high of Rs 199.60 on BSE. The stock has given nearly 275% returns to investors in the last one year.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)