Blinkit's Aggressive Expansion To Keep Zomato's Profitability Subdued, Say Analysts
Most brokerages reduced target price noting challenges to Zomato's profitability in the near term.
Zomato Ltd.'s profitability is expected to remain subdued in current and next financial year as Blinkit expands aggressively, according to brokerages. In three months to December 2024, the food delivery business's profit was impacted due to Blinkit's rapid expansion plan.
Zomato's Ebitda margin came 3% below Dolat Capital Research's estimate as operating expenditure increased due to investment in Blinkit. The company is now planning to increase dark store count to more than 2,000 by December 2025, the brokerage said.
Dolat Capital Research is also expecting Ebit losses in financial year 2025. The brokerage maintained a 'Sell' rating on the stock, noting risk to its estimates and steep valuations.
Zomato's food delivery business's performance was sub-par in the third quarter, Nomura said. It has delivered less growth in gross order values than what the brokerage expected. Now, Nomura expects food delivery business to deliver 17–20% growth in GOV in FY 2025 and 2026, with the contribution margin of 8–9%.
Blinkit remained focused on store expansion because of its low penetration levels. Zomato's quick-commerce arm already advanced store count target of 2,000 by the end of this year because of the scale-up of its store addition capability and higher competition in the space. It has already expanded Blinkit's store count to 1,007 in nine months of financial year 2025. "We expect 125% year-on-year growth in GOV with CM of 2.3-3-.1% in FY25-26F," Nomura said.
Nomura has retained 'Buy' rating on Zomato, but reduced the target price to Rs 290 apiece from Rs 320.
Management is now guiding for Blinkit losses to continue in next one-to-two quarters but expects more than 100% GOV growth for financial year 2025 and 2026, BofA said. The brokerage cut earnings per share estimates to 0.55% for the current financial year from 0.97%. However, the brokerage reiterated 'Buy' on the stock on favourable risk-reward ratio as first mover advantage matters in quick-com business. The brokerage has a target price of Rs 375 apiece.
Nuvama believes this investment on expansion of Blinkit store counts will lead to future profitability as those stores start to add value into quick commerce business. Nuvama maintains 'Buy' rating but cut target price to Rs 300 from Rs 320 apiece.
Nevertheless, Zomato delivered revenue growth in the third quarter in line with Emkay Global's estimates. Its food delivery business performance was muted because of a broad-based slowdown from November, the brokerage said. Emkay Global has a target price of Rs 310 with a 'Buy' rating.
Macquarie maintains 'Underperform' as it regards Zomato as an efficient quick-commerce and food delivery platform, but for the shares "we see limited margin of safety", the brokerage said. The brokerage has a target price of Rs 130 apiece.
UBS Global Research expects total employee cost to remain high in the near term, and it may come down to 6-8% of adjusted revenues by FY 2027, compared to FY 2026 in earlier guidance. The brokerage has a 'Buy' rating with target price of Rs 320 apiece.
