Zomato Cut To 'Hold' By Jefferies As Quick Commerce Race Poses Threat To Profitability

Food delivery aggregator Zomato Ltd.'s shares were downgraded by Jefferies to 'hold' as it revised the target lower, citing increasing competition as a threat to profitability.

Analysts at Jefferies expect a year of consolidation for the stock after it doubled in value in 2024, it said in a note on Jan. 6. Although valuations appear reasonable considering Zomato's strong execution and growth opportunities, Jefferies is "worried on the rise in quick commerce competition."

Jefferies set a target price of Rs 275 per share from Rs 335 apiece earlier, implying an upside of 1% from the previous close.

The brokerage firm expects aggressive moves by established players and new entrants to lead to higher discounting, potentially jeopardising medium-term profitability. Additionally, Jefferies sharply cut its Ebitda forecast for Blinkit, Zomato's quick-commerce arm, for fiscal years 2026-27. The firm also halved its target multiple for Blinkit to six times.

The stock recently replaced JSW Steel Ltd. to take its place in the benchmark Sensex with a potential inflow of $513 million in the latest December rejig.

The market capitalisation of Zomato Ltd. has risen by 121% to Rs 2.55 lakh crore in the last 12 months, as its stock has rallied by 99%. Meanwhile, its rival Swiggy Ltd. has seen a stellar run post its debut on the exchanges. The stock has surged by 16% since its listing in November. The stock has fallen by over 13% since hitting a life-high on Dec. 09 last year.

Anand Rathi Share and Stock Brokers Ltd. has initiated coverage on food delivery aggregators Zomato Ltd. and Swiggy Ltd. with a 'buy' rating.

The 'buy' rating for the two companies comes amid their ongoing efforts to diversify their portfolios beyond food delivery to capture a larger share of the growing intracity e-commerce market.

In the food delivery market—which was valued at around Rs 64,000 crore in 2023— the duopoly between Zomato and Swiggy is firmly entrenched, making it difficult for new entrants to disrupt their dominance, the research report said.

Of the 27 analysts tracking Zomato, 24 have a 'buy' rating on the stock, one has a 'hold' and two have a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential upside of 15%.