Zomato Shares Decline Following Downgrade by Jefferies

Zomato, India’s leading food aggregator, saw its stock price drop by 5% on January 7, 2025, after Jefferies downgraded the stock to ‘Hold’ and lowered its target price by 18% from ₹335 to ₹275. This downgrade follows concerns over intensifying competition in the quick commerce segment, where Zomato’s Blinkit faces rising pressure from rivals such as Swiggy’s Instamart, Zepto, Amazon, and other emerging players.


Jefferies’ Concerns

  • Intensified Competition: Jefferies believes that Zomato’s Blinkit is facing significant challenges from competitors in the quick commerce space, which will negatively affect the company’s profitability due to aggressive discounting and increasing market penetration by rivals.
  • Lower Earnings Projections: Jefferies has significantly cut its EBITDA estimates for Blinkit for FY26-27 by 12-15%, reducing Blinkit’s valuation multiple to 6 times. The overall FY25 EBITDA estimate for Zomato was lowered by 15%, while estimates for FY26 and FY27 were reduced by 12% and 18% respectively. Earnings per share (EPS) projections were cut by 20% for FY26 and 21% for FY27.
  • Consolidation in 2025: The brokerage expects 2025 to be a year of consolidation for Zomato following the impressive rally in 2024, during which the stock more than doubled in value.

Other Brokerages’ Viewpoint

Despite Jefferies’ cautious outlook, other brokerage firms maintain a more optimistic view on Zomato:

  • Morgan Stanley reaffirmed its ‘Overweight’ rating, with a target price of ₹355, citing the momentum in India’s quick commerce sector, Zomato’s strong execution in food delivery and quick commerce, and a solid balance sheet.
  • Bernstein also included Zomato in its top stock picks, showing continued confidence in the company’s growth prospects.

Stock Price Performance

  • Recent Decline: Zomato’s stock fell 4.9% to ₹251.60 on January 7, extending losses for the third consecutive session. It has lost 9% in January 2025 alone, following a half a per cent fall in December 2024.
  • One-Year Performance: Despite recent declines, Zomato’s stock has surged almost 99% in the past year, joining the 30-stock Sensex index after delivering a 130% return in 2024. The stock remains over 17% below its December 2024 peak of ₹304.50 but has surged almost 107% from its 52-week low of ₹121.70 in January 2024.

Q2FY25 Financial Performance

  • Zomato reported strong financial results for Q2FY25:
    • Profit After Tax (PAT):176 crore, a fivefold increase from ₹36 crore in Q2FY24, though it declined by 30% from ₹253 crore in Q1FY25.
    • Revenue from Operations:4,799 crore, reflecting a 69% YoY increase compared to ₹2,848 crore in Q2FY24, showcasing the company’s ability to scale operations despite a competitive environment.

Outlook

While Jefferies has downgraded the stock due to heightened competition and profitability concerns, Zomato’s strong operational performance and growth potential continue to attract confidence from other analysts. The quick commerce and food delivery sectors remain key areas of focus, with Zomato’s leadership in the industry positioning it well for long-term growth despite the competitive pressures.


Disclaimer:

The views and recommendations above are those of individual analysts or brokerage firms.

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