Zomato, the prominent food delivery and quick commerce company, witnessed a sharp 5% drop in its share price today following a downgrade from Jefferies, a global brokerage firm.
The downgrade was attributed to rising competition in the quick commerce sector and concerns over the company’s medium-term profitability.
Jefferies revised its rating for Zomato’s stock from “Buy” to “Hold” and reduced its target price by 18%, bringing it down to ₹275.
This action followed the increasing competition in the sector, especially from other quick-commerce players such as Swiggy’s Instamart, Blinkit (owned by Zomato), Amazon, and Zepto.
Analysts at Jefferies warned that the growing rivalry could lead to aggressive discounting strategies, putting significant pressure on Zomato’s profitability in the medium term.
In early trading today, Zomato’s share price dropped to ₹254.90 on the National Stock Exchange (NSE), marking a substantial decrease of nearly 16% over the past month.
Jefferies further adjusted its earnings estimates for Zomato, slashing its EBITDA forecast for FY25 and FY26 by 15% and 12%, respectively. These revisions are reflective of anticipated challenges the company may face in a highly competitive market.
While Jefferies remains cautious about Zomato’s immediate future, other analysts maintain a more optimistic outlook. Morgan Stanley, for instance, has kept an “Overweight” rating on the stock, setting a higher target price of ₹335.
Morgan Stanley points to Zomato’s market position and potential for future growth despite the short-term challenges posed by fierce competition.
Zomato’s continued push into the quick commerce market, particularly through its Blinkit platform, has sparked concerns regarding profitability, as companies in the space are facing rising operational costs and shrinking margins due to constant price wars.
The heightened competition has prompted companies to engage in heavy discounting strategies to attract customers, making it increasingly difficult to sustain profitability in the long run.
However, Zomato’s strong brand recognition and its established food delivery network give it a solid foundation, which analysts believe will help the company weather these challenges in the years ahead.
As of now, Zomato remains a dominant player in India’s food delivery market.
However, the recent downturn in its stock price serves as a reminder of the volatile nature of the tech-driven quick commerce industry, where competition is fierce and profit margins are thin.
Investors and analysts alike will be closely watching Zomato’s next quarterly results and its strategic responses to the competitive pressures facing its business in the coming months.
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