Zomato Shares Surge as Investors Grow Confident in the Company’s Growth and Margin Prospects

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Zomato shares saw a 1.7% increase in trading on the NSE on September 18, fueled by investors’ growing confidence in the company’s ability to deliver visible revenue growth and margin expansion.

According to a Jefferies report, most investors complimented CFO Akshant Goyal during the company’s US roadshow for delivering on promises made a year ago. The report said that skepticism was high back then, but the exact opposite is true now.

Jefferies expects Zomato’s food delivery value to grow at 20-25%, and its new quick commerce business to grow at a whopping 60% CAGR. The report said that food delivery has a large growth runway as restaurants contribute only 10% of food consumption in India. Zomato and Swiggy are enabling growth by sharing local insights with restaurants which improve cuisine diversity and drive local demand.

On the other hand, Zomato’s quick commerce could become even bigger than food delivery in India’s sizable retail opportunity.

In addition, Jefferies expects food margins to expand to 5% gradually, while quick commerce will likely break-even in four quarters.

Jefferies, which has a ‘buy’ rating on the food delivery platform with a target price of Rs 130, says that with only ~20mn monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth. But adds that this may come at the cost of near-term profitability. Post its IPO, the report adds, the company has shifted its focus from survival to being future-ready.


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