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Shares of food delivery giant Zomato reached a new high of Rs 304.50, rising 6% on the BSE during Thursday’s intra-day trade; Should you invest?
In the past one month, Zomato outperformed the market by soaring 27 per cent, as compared to 1.5% gain in the S&P BSE Sensex
Shares of food delivery giant Zomato reached a new high of Rs 304.50, rising 6% on the BSE during Thursday’s intra-day trade, driven by heavy trading volumes and optimistic expectations for the company’s future outlook. The stock surpassed its previous high of Rs 298.20 set on September 24.
Over the past month, Zomato has outperformed the broader market, soaring 27%, compared to a 1.5% gain in the S&P BSE Sensex. This rally has propelled Zomato’s market capitalization towards Rs 3 trillion. The stock, which is set to join the Sensex index by the end of December, is now close to crossing the Rs 3 lakh crore market cap threshold.
On Friday, Zomato announced that it raised Rs 8,500 crore ($1 billion) through a qualified institutional placement (QIP), marking its first major fundraise since its public listing in July 2021. The company’s board approved the issue and allotment of 336.47 million equity shares at an issue price of Rs 252.62 per share. The stock is currently trading 21% above the QIP issue price.
The funds raised will strengthen Zomato’s balance sheet and support its expansion, particularly in the competitive quick commerce and food delivery sectors. Of the Rs 8,500 crore, Rs 2,137 crore will be used to expand Blinkit’s network of dark stores and warehouses. Zomato’s cash balance stood at Rs 10,800 crore at the end of Q2FY25, and with the new funds, it will rise to Rs 19,300 crore.
Analysts believe Zomato has executed its business strategy flawlessly across food delivery, quick commerce, and Go Out (GO) segments over the past two years, positioning itself as a leader in both growth and profitability. This has helped Zomato achieve the highest cash earnings before interest, tax, depreciation, and amortization (EBITDA), as well as free cash flow (FCF) growth among listed consumer internet businesses, justifying a premium valuation.
With its strong brand and growing demand for business-to-consumer (B2C) services and quick commerce, analysts at Axis Securities expect Zomato to demonstrate significant growth between FY25 and FY26. They maintain a “BUY” rating on the stock and have set a target price of Rs 350 based on a sum-of-the-parts (SOTP) valuation.
Zomato’s competitor Swiggy’s positive Q2 earnings also bode well for Zomato. Global brokerage CLSA reaffirmed its ‘outperform’ rating on Zomato with a target price of Rs 370, citing strong momentum in the quick commerce segment and Zomato’s leadership position. Morgan Stanley has an overweight rating on Zomato, with a target price of Rs 355.
According to Morgan Stanley, while Swiggy showed a slight reversal in its market share loss to Zomato in Q2FY25, its Quick Commerce business grew in line with Zomato’s Blinkit. Swiggy’s unit economics improved, though its consolidated adjusted EBITDA loss remained largely unchanged from Q1.
Swiggy’s shares also surged by up to 11%, reaching a high of Rs 576.95 during the day.
JM Financial stated that both Zomato and Swiggy are well-positioned to benefit from strong industry tailwinds in hyperlocal delivery businesses. The brokerage has raised its target price for Swiggy to Rs 550, valuing its food delivery business at 45x EV/FY27E Adj. EBITDA multiple and Instamart’s quick commerce business at 1.75x EV/FY27E GOV multiple due to improving growth and profitability.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
