Zomato stock down 21% from 52-week high amid market pessimism: Should you buy, sell, or hold to build sizable positions?

Zomato stock check: The stock price of leading food delivery app Zomato is currently trading 21 per cent below its 52-week high mark of ₹304.50 amid the current pessimism in the Indian stock market over persistent foreign capital outflows and stretched valuations. Deepinder Goyal-led food delivery app and hyperlocal quick commerce giant yet remains among the most sought-after new-age tech stocks for D-Street analysts and brokerages.

Zomato’s stock faces investor concerns about accelerated investments in Blinkit’s supply chain (dark store and warehouse network) and rising competitive pressures in quick commerce. According to domestic brokerage JM Financials, while these concerns have merit, the impact on Blinkit’s adjusted EBITDA margin may not be meaningful in the long-term.

Also Read: Need ambulance in 10 minutes? BlinkIt delivers in Gurugram, plans expansion

The deviation from near-term guidance of break-even levels will be limited and could also be temporary. Further, Street analysts believe supply chain investments should help Blinkit better compete with emerging competition.

 “Zomato, in our opinion, is the most resilient company in the quick commerce space due to its strong market leadership, demonstrated history of strong execution capabilities, and robust balance sheet. We, therefore, strongly suggest that long-term investors use the stock’s recent market pessimism to build sizable positions,” JM Financials said in its report.

Also Read: Zomato’s Blinkit launches Bistro app: How does it compare with Zepto Cafe? All we know about ’new growth frontier’

Zomato beats Swiggy for D-Street experts

According to experts, Zomato is a clear market leader (in gross order value or GOV/revenue terms) across all its operating business segments. It is also well ahead of the competition on the profitability front across business segments. Moreover, according to experts at JM Financials, Zomato is the only major hyperlocal delivery company in the country that, at a consolidated level, is generating free cash flows without compromising topline growth.

Zomato is seen as the most resilient player in the hyperlocal delivery space. It indicates the strong execution capabilities of the management, giving us the confidence that Zomato is the best-placed company to fend off emerging competitive threats in quick commerce. “We, therefore, prefer Zomato over Swiggy (BUY, ₹550) amongst the two listed hyperlocal delivery players, post a recent correction in both stocks,” said analysts.

Blinkit better competes with emerging competition

The operating losses for the competition (both in absolute and margin terms) in the near term could be significantly higher than that for Blinkit despite operating at a relatively smaller scale (in terms of GOV). This is because Blinkit seems to have mostly chosen not to respond to the heightened competitive intensity. Blinkit competes with Swiggy Instamart, Jiomart, Amazon, Zepto, and Flipkart in quick commerce delivery segment.

Also Read: Blinkit launches EMI facility for orders above ₹2,999; netizens give mixed reactions, ‘disaster in making…’

“Importantly, we believe Blinkit’s focus on offering a differentiated shopping experience (basis better category width and depth) and supply chain investments should help it build long-term moats such as strong customer recall and access to prime real estate, respectively,” said market experts.

Key Risks

Key upside risks to the price target are: (1) A sharp rise in transacting users driven by a growing share of working-age digitally native millennial/GenZ population; (2) Better-than-expected AOV growth; (3) Synergy benefits from a rapid expansion of Hyperpure and going-out businesses and (4) Significant value accretion from organic/inorganic expansion in adjacent verticals.

Key downside risks are: (1) Slower-than-expected tech penetration in India; (2) Sharp increase in competitive intensity; (3) Continued stakeholder conflicts such as allegations of unfair trade practices from food services industry bodies such as NRAI, amongst others (4) Technology failures and data breaches (5) Regulatory risks: Uncertainty around the likely implications for tech-platforms such as Zomato if the new labour laws are implemented in India. (6) Organic/inorganic investments fail to deliver.

Also Read: Zomato shares drop 5% after Jefferies downgrades stock, cuts target price by 18% to ₹275

Stock price trend

Zomato has delivered a stellar 95 per cent return on investments in the last year, outperforming benchmark indices Sensex and Nifty 50.  The new-age tech stock is trading 21 per cent below its all-time high mark amid weak market sentiment and last settled 2.8 per cent higher at ₹248.75 apiece on the BSE. As of January 17, Zomato commands a market cap of ₹2,40,052.47 crore.

Valuation

Reiterate ‘BUY’ with an unchanged target price (TP) of ₹300: “We continue to assign a target multiple of 75x on Zomato’s Mar’27 EPS to derive an unchanged TP of ₹300. Zomato remains one of our preferred picks in the listed Internet space. We maintain ‘BUY’,” said brokerage JM Financials.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.