Zomato’s shares are expected to increase by 22%, driven by the growth in food delivery and Blinkit’s Gross Merchandise Value (GMV), according to Kotak Equities
Driven by the growth of Zomato’s food delivery business and Blinkit’s GMV, domestic brokerage firm Kotak Institutional Equities has maintained its ‘buy’ rating on the stock with a target price of Rs 305. The firm anticipates a decent third-quarter performance from the company, suggesting an upside potential of 22.3% from the stock’s current levels.
Kotak Equities expects food delivery to show a sequential contribution margin improvement, driven by higher platform fees. However, rapid store additions in Blinkit and higher customer acquisition costs may impact EBITDA margins.
The brokerage firm forecasts a 19% YoY growth in food delivery GMV and a significant 114% YoY growth in Blinkit GMV. The contribution margin is expected to reach 7.8% of GMV, showing a quarter-over-quarter improvement of 20 basis points. This enhancement is attributed to increased restaurant take-rates and the implementation of a Rs 10 per order platform fee. The adjusted EBITDA margin is projected to expand from 3.5% to 3.7% of GMV.
Regarding Blinkit’s performance, Kotak’s report highlights robust growth in the quick-commerce segment, with Blinkit’s GMV expected to surge 114% year-over-year, accompanied by a 124% revenue increase. The business is maintaining a strong trajectory, with a projected 24% quarter-over-quarter growth. While the contribution margin remains steady at 3.8%, the EBITDA loss is expected to widen to Rs 13.2 crore, primarily due to expansion-related costs.
“The Blinkit business is experiencing significant growth, fueled by the addition of new stores and enhanced customer engagement. While near-term competitive pressures may impact Blinkit’s profitability, it remains the top-performing business in terms of unit economics,” stated Garima Mishra of Kotak Equities.
The report also suggests that Zomato’s investments in its ‘going out businesses’ and ‘Hyperpure’ could potentially generate added value in the medium term.
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