Zomato: “Good food is the foundation of genuine happiness” but the question is will shareholders of Zomato find the same level of happiness in the coming years? The phenomenal rise of food delivery apps in the last couple of years have made the investors of the D-Street go bonkers, behind the only food delivery stock which is available in the market right now that’s none other than Zomato.
Although the industry is seeing steady growth because of internet penetration in tier 2 and tier 3 cities, the entry of big players like Reliance and Tata with their Tata Neu app in the arena poses a significant challenge for Zomato. Along with the big players, the arch-rival Swiggy also poses a tough competition for the same. So how is the future of Zomato looking like? Lets find out.
Industry Outlook Of Zomato
By the end of 2024, the online meal delivery business is predicted to generate $44 billion in revenue, growing at a compound annual growth rate of 16.14% during the following five years. Consequently, a market volume of US$92.5 billion is anticipated by 2029. Thus, resulting in a projected market volume of US$92.5 bn by 2029.
In the Grocery Delivery market in India, revenue is expected to grow by 30.7% in 2025. The market volume for Grocery Delivery is projected to be US$30.65bn in 2024 with average revenue per user (ARPU) in the Food & Grocery Delivery market in India is projected to amount to US$194.209(p.a) in 2024.
Note: If you want to learn Candlesticks and Chart Trading from Scratch, here’s the best book available on Amazon! Get the book now!
The food delivery market in India is going to witness the number of users rising to 312.8m by 2029. While, the user penetration in this market will be at 15.6% in 2024. India’s online food delivery market is bolstered due to the rising demand for convenience and the wide range of cuisines available.
Company Overview Of Zomato
Incorporated in the year 2010, Zomato is a tech company which provides a platform where customers can connect with restaurant partners and delivery partners to meet their needs. Customers can also use the platform to write food reviews, upload photos, locate restaurants, order food and other daily essentials online. Customers can also avail the dine out facilities and avail discounts on their food bill.
On the other hand, Zomato offers its restaurant partners industry-specific marketing solutions that help them attract and attract clients in order to expand their business. In addition, they run a B2B business model called Hyperpure, which provides restaurant partners with premium ingredients and kitchenware as a one-stop shop.
Zomato holds a dominant position in the duopoly of meal delivery, holding a 55% market share. In addition, Blinkit leads the grocery delivery business with a 45% market share.
The IPO effect
The historic assertion that share prices are determined by fundamentals rather than conjecture was validated by Zomato’s share price collapse. Which saw it drop from ₹ 116, its listing price, to about one-third of its worth, almost reaching ₹ 40. From there the share price rebound beyond its listing price to levels above 200 as the company turned profitable recently.
Financial Highlights Of Zomato
Revenue: As an outcome of rising consumer base, rising gross order value, the revenue of the company rose by 5 times from 2,605 Cr to 12,114 Cr in 5 years.
Net profit: Zomato’s net profit has seen dramatic growth in the last 2 years from -2,386Cr. To 351Cr. The reason being the company’s focus on reducing cash burn, increasing platform fee, reducing the discounts given to customers, as well as the introduction of Zomato Pro.
Operating profit margin: Due to increased business efficiency brought about by logistics streamlining, Zomato’s operating profit margin has also steadily improved, rising from -88% to 0.01 as the company has focused its food delivery business on 8 major cities and closed operations in areas where margins were being squeezed.
Return on equity: The company’s ability to make better use of shareholders‘ cash to increase their market share and acquire Blink has increased its return on equity, which was formerly ₹-70,096 Cr. to ₹ 0.40 Cr.For Zomato, it truly has been a game-changer.
Gross Order Value:
Zomato’s gross order value has increased over the years from 11,221 to 32,224. Primarily because of the efficiency in food delivery which has reduced the time of deliveries. The company in a span of 5 years was also able to turn the tides in its favour by adding close to 1,16,000 restaurants offering multiple cuisines under their belt.
(Source: Zomato)
Also read…
Future Plans Of Zomato
Zomato is gearing up for a significant expansion of market share and profitability and to establish its strong foothold into the fast-growing direct-to-consumer (D2C) space through its 10-minute delivery platform, Blinkit, and its food delivery business according to a report by the Economic Times (ET).
Blinkit has a presence in 26 cities, the focus from an expansion standpoint is the top eight cities in India. Of the new stores that Zomato has opened in Q4FY24, 80% are in these top eight cities. Where Zomato feels it is significantly underpenetrated.
Gross Order Value: Bengaluru, Zomato’s second-biggest city in terms of GOV (gross order value), is less than 30% of Delhi NCR’s GOV (biggest market), with a comparable store count difference. In the future, Zomato aims to bring Bangalore, Mumbai, and other major cities to the level of Delhi NCR in terms of shop footprint and GOV. This alone can push Zomato’s GOV by four times.
ESG
Firstly, Zomato’s progress on the ESG front last year resulted in their ESG rating improving from ‘medium risk’ to ‘low risk’ by one of the leading global agencies – Sustainalytics. Zomato is proud to share that they are now having the best ESG rating amongst major global food delivery companies across the world. They hope to continue to improve this rating with progress on their ambitious net zero goal to achieve net zero emissions across the food delivery value chain by 2033.
Secondly, the ‘first-responder training program’ that Zomato launched last quarter has trained 20,000+ delivery partners across multiple cities who are now capable of performing first-aid and CPR in case of any on-road casualties.
(Source: Deepinder Goyal, Founder & CEO of Zomato)
SWOT Analysis
The main advantages of Zomato are its well-established network of restaurant and delivery partners. In addition, the food delivery industry now operates as a duopoly, with Swiggy being the other major player. Furthermore, Zomato might anticipate capitalizing on the increasing internet penetration in tier 2 and tier 3 cities, given the increasing family income and growing youth population’s desire for convenience.
But in the upcoming years, there would be fierce competition due to the planned arrival of powerful, well-funded companies like Reliance and Tata through (the Tata Neu app). It is going to be intriguing to watch how Zomato approaches the business’s potential for growth in the future.
Key Metrics Of Zomato
Target Price Of Zomato
Geojit BNP Paribas: The target given by them is ₹220 with a BUY rating as the brokerage feels Zomato is a leading food and grocery delivery platform and would continue to push its market share further.
Emkay Global: has given a price target of ₹230 with a BUY recommendation at ₹185-190. According to the brokerage, Zomato’s food delivery will keep growing steadily while BlinkIt is going to be the real game changer in the coming years.
ICICI Securities: believes Zomato is the greatest stock available in the internet business right now, and has set targets as high as ₹300. Regarding BlinkIt, ICICI Securities is likewise optimistic about the company, believing that it will only grow its market share absent any outside influences. A BUY recommendation has been issued by ICICI Securities in the ₹185–200 price range.
Conclusion
Given Zomato’s competitive advantage in the industry, it will be interesting to watch how Zomato maintains and grows its market share over time as larger competitors like Swiggy enter the picture. It will be fascinating to observe whether customers are willing to pay an additional 20–30% for convenience in a country where people are highly price sensitive.
Written By Dipangshu Kundu
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.
Start Your Stock Market Journey Today!
Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!
