Shiny Zomato Gold, better commissions make analysts bullish in the long run

    • Renewed Zoma gold plans put the company in a better position against rivals Swiggy as it tries to gain more market share.
    • Despite short-term headwinds, such as the return of dining out, and a slowdown in discretionary consumption, analysts maintained a positive view on the food delivery segment over the medium to long term.
    • Market share gains thanks to aggressively priced loyalty program and Blinkit help support upbeat outlook for Zomato, says HSBC analysts.

    Zomato’s stock was under the pump in 2023, falling more than 12%, while its benchmark Nifty50 index is down less than 6% year-to-date. However, HSBC Global Research analysts think the markets are underestimating the company’s longer-term prospects and food delivery in general.

    Now, with the relaunched Gold plans and Zomato’s push for higher take rates from its restaurant partners, analysts have voted bullish on the company as the food delivery industry works to become profitable. Take-rate is the commission that Zomato costs to its restaurant partners.

    Return from eating out to food delivery

    One of the reasons behind the most recent Zomato stock slump is a slowdown in its core food delivery business. In his December quarterly results, the company’s CEO, Deepinder Goyal, underlined that this is not unique to Zomato alone, but is an industry-wide trend due to the return of dining out.

    “We are going from the hypergrowth expectations of the [Dalal] Street are now subdued, although the current subdued growth is likely to be below the long-term trend,” said a report from HSBC Global, led by analysts Yogesh Aggarwal and Abhishek Pathak.

    In the near term, HSBC’s analysts expect gross order value to grow at 9% year-on-year, well below their previous expectations of 15% growth. However, in the longer term (two to five years), it expects the food delivery segment as a whole to deliver a compound annual growth rate (CAGR) of 10-15% due to an improvement in order frequency.

    Analysts at Kotak Institutional Equities are relatively more optimistic with an expectation of nearly 25% annualized growth in GOV in FY23.

    Decline in discretionary spending another headwind

    Another headwind slowing food delivery is the fall in discretionary spending due to increased food inflation. “So the March 2023 quarter may not be exciting as inflationary pressures, seasonally weak demand (low festival days) and lower number of days in the quarter all impact demand for food delivery,” the Kotak report added. please.

    According to ICICI Securities analysts, discounting could make a comeback in a bear case scenario where discretionary consumption continues to fall. However, that would lead to a downgrade for the food delivery segment as a whole, with Zomato and Swiggy both forced to keep their profitability plans on the backburner.

    Backtrack with a refreshed and aggressive loyalty program

    The analysts agree that the revamped Zomato Gold loyalty program with modified plans should help the company regain some of its market share, even if it could hurt margins in the short term.

    Zomato vs. Swiggy | Representative imageBCCL

    In January, Zomato Gold relaunched at an introductory price of ₹149 for three months, unlike the similar Swiggy One plan which costs ₹399.

    HSBC analysts now expect Zomato to increase its market share to 57% from the existing 54% by FY24. Since FY20, Zomato has aggressively increased its market share from 44% to 54%, and the new Zomato Gold plans could add more juice, putting the company in a much stronger position as it works towards profitability.

    In the short term, however, the revamped Zomato Gold plans could shrink margins, but HSBC analysts expect Zomato’s push for higher withdrawal rates to offset some of the impact – the research firm expects Zomato’s withdrawal rate to rise from the existing 17 .2% to 18.5% in the March 2023 quarter.

    Blinkit ‘undervalued’

    Zomato’s Blinkit ₹4,447 crore acquisition has been under the scanner for several reasons, including slowing down the company’s pursuit of profitability.

    Analysts at HSBC, however, maintained their upbeat outlook, highlighting that hyper-local fast trade will drive strong growth — they expect Blinkit’s gross order value to double to $2 billion in FY25, from the existing $1 billion.

    “With volumes increasing, we see the potential for significant improvement in profitability,” the HSBC report added, which said technology and logistics optimizations could help improve overall profitability.

    Analysts at HSBC and Kotak Institutional Equities maintained their optimistic outlook, expecting an increase of between 54% and 64% from the current market price of ₹53 per share.


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