Macquarie Sees 44% Downside in Zomato Stock, Cuts Target Price
21st Jan 2025
Macquarie has raised concerns over Zomato Ltd's prospects, warning of a potential 44% downside in the stock price. The investment firm's fresh target price on Zomato comes after the company's December quarter earnings missed consensus and Macquarie's own estimates.
Macquarie's Concerns on Zomato's Q3 Performance
Macquarie noted that Zomato's Q3 performance was weighed down by investments in Blinkit and higher employee expenses. The firm said Zomato's gross order value (GOV) in quick commerce grew 120% year-on-year, beating its estimates, but this was likely driven by higher marketing spends, resulting in an adjusted EBITDA margin of -1.3% of GOV against expectations of near-breakeven.
Challenges in Blinkit and Food Delivery Segments
Macquarie continues to flag "material downside risk" to Blinkit's margin expansion assumptions, citing hyper-competition in the quick commerce space. In the food delivery segment, it sees a mild downside to consensus forecasts of 20% 3-year GOV CAGR and 4.5-5% adjusted EBITDA margin for FY26-28.
Macquarie's Valuation and Price Target for Zomato
Macquarie said it regards Zomato as an efficient quick commerce and food delivery platform, but sees limited margin of safety in the shares. Its DCF-based price target of Rs 130 implies a 55x FY27 PE (adjusted for treasury income), suggesting a 44% downside from the current levels.
Macquarie's Concerns on Zomato's Q3 Performance
Macquarie noted that Zomato's Q3 performance was weighed down by investments in Blinkit and higher employee expenses. The firm said Zomato's gross order value (GOV) in quick commerce grew 120% year-on-year, beating its estimates, but this was likely driven by higher marketing spends, resulting in an adjusted EBITDA margin of -1.3% of GOV against expectations of near-breakeven.
Challenges in Blinkit and Food Delivery Segments
Macquarie continues to flag "material downside risk" to Blinkit's margin expansion assumptions, citing hyper-competition in the quick commerce space. In the food delivery segment, it sees a mild downside to consensus forecasts of 20% 3-year GOV CAGR and 4.5-5% adjusted EBITDA margin for FY26-28.
Macquarie's Valuation and Price Target for Zomato
Macquarie said it regards Zomato as an efficient quick commerce and food delivery platform, but sees limited margin of safety in the shares. Its DCF-based price target of Rs 130 implies a 55x FY27 PE (adjusted for treasury income), suggesting a 44% downside from the current levels.