Zomato stock falls 5% as Macquarie anticipates nearly a 50% downside due to tough competition

Zomato stock: saw a decline of over 5 percent on May 31 following a forecast by foreign brokerage Macquarie, predicting a nearly 50 percent drop in the food delivery platform’s share price over the next 12 months due to heightened competition in the quick commerce sector.

As of 11:33 am, Zomato shares were trading at Rs 173.80 apiece on the NSE.

Macquarie maintained its “underperform” stance on Zomato, setting a price target of Rs 96, suggesting a potential decrease of 46 percent from Thursday’s closing price.

The brokerage has upheld its ‘underperform’ rating on Zomato since May of the previous year, when it downgraded it from its previous ‘neutral’ stance. It’s important to note that Macquarie’s ‘underperform’ rating on Zomato is essentially a ‘sell’ recommendation, making it one of the only three brokerages advising investors to divest from the stock.

Macquarie analysts pointed to escalating competitive pressures as the primary reason for their caution, particularly with the upcoming launch of JioMart’s 30-minute grocery delivery service in several cities, set to commence next month and expand further.

JioMart, owned by Reliance Industries, intends to roll out its 30-minute grocery delivery service in eight cities initially, with plans to extend its reach to the top 20-30 cities across the country in the initial phase.

Macquarie holds a pessimistic outlook on both consensus forecasts and margins for “Blinkit”, offering a contrary perspective to Goldman Sachs’ latest valuation, which assigned Zomato’s short trade arm a good better couple of than the company’s flagship meals shipping business.

In the March quarter of FY24, Blinkit achieved positive EBIT, with revenue more than doubling year-on-year to Rs 769 crore.

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During the same period, Zomato reported a net profit of Rs 175 crore, marking a significant improvement from a net loss of Rs 188 crore in the corresponding quarter of the previous year. The surge in net profit was also supported by a 37 percent increase in its other income to Rs 235 crore.