Goldman Sachs Ups Zomato's PT To INR 240, Says Blinkit More Valuable Than Food Delivery Biz

Brokerage firm Goldman Sachs maintained its ‘Buy’ rating on foodtech major Zomato in its latest report and hiked the price target (PT) for the stock by over 40% to INR 240 from INR 170 earlier.

The updated PT represents an upside of nearly 30% to the stock’s close at INR 184.75 on the BSE on Thursday (April 25). Shares of the company surged over 3% during the intraday trading on the BSE on Friday (April 26).

Goldman Sachs cited the growth in Zomato’s quick commerce business Blinkit for the increase in the PT.

“We note that Blinkit’s implied valuation in our Zomato’s sum of the parts (SOTP) is (close to) $13 Bn now, versus $2 Bn in March 2023, with per share implied value of INR 119 higher than food delivery, at INR 98, for the first time,” TechCrunch quoted the brokerage as saying in the report.

Goldman Sachs expects Blinkit’s gross order value (GOV) to grow at a CAGR of 53% during FY24 to FY27. It also expects Blinkit to achieve EBITDA breakeven by Q4 FY24 and generate a higher EBITDA margin than Zomato’s food delivery business by FY30.

Earlier in January, Goldman Sachs increased the PT on Zomato to INR 160 before the company announced its financial results for the quarter ended December 2023. At that time, the brokerage said it was the fastest growing company within its global food delivery and India internet coverage.

Subsequently, the foodtech major announced bumper financial results for the December quarter in February. Its consolidated profit after tax (PAT) surged 283% quarter-on-quarter (QoQ) to INR 138 Cr in Q3 FY24.

In the quarter, Blinkit witnessed a 103% year-on-year (YoY) and 28% QoQ growth in GOV to INR 3,542 Cr in the reported quarter. While its adjusted EBITDA loss declined to INR 89 Cr in the quarter, Zomato’s food delivery business’ adjusted EBITDA stood at INR 252 Cr.

After Zomato announced its financial results, multiple brokerage firms, including Jefferies, Nuvama and Kotak, raised their PTs on the stock.

It is pertinent to note that Blinkit has been contribution positive in the last two consecutive quarters. In February, Blinkit’s contribution margin, as a percentage of GOV, in the overall business improved to 2.4% in Q3 FY24 from 1.3% in Q2 FY24.

The report comes at a time when the quick commerce business landscape in the country is growing and changing at a rapid pace. Goldman Sachs estimates that India’s addressable quick commerce market in the top 50 cities alone stands at $150 Bn as of 2023.

In this high growth market, Blinkit ruled the roost in 2023. According to a consumer sentiment analysis by Inc42 and Clootrack, Blinkit topped the rankings by securing the highest favorability from consumers. It also saw the maximum app downloads between January 1 and November 22, 2023, with over 14 Mn users downloading the app. Next in line were Zepto (with over 11 Mn downloads) and Dunzo (with over 3.4 Mn).

However, this sharp growth has also attracted attention from the central government. On Thursday (April 25), it was reported that the Central Consumer Protection Authority (CCPA) has initiated an inquiry into quick commerce players Blinkit, Swiggy Instamart, Zepto and Big Basket (BB Now) over their ‘10 minute’ delivery claims.

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