Zomato's Share Price Hits Record High, Surges as Much as 270% in One Year: What's Behind Its Success?

Zomato, India's leading online food delivery platform, is on a tear. Its stock price has skyrocketed by a staggering 270% in the past year, reaching an all-time high in early April 2024. This impressive rally is driven by a combination of factors, including positive financial results, a booming quick commerce segment (Blinkit), and a growing online food delivery market in India.

Zomato's Financials Show Promise

Investors are clearly impressed with Zomato's recent performance. The company has delivered consistent quarterly results, showcasing financial stability.  This stability is further bolstered by the impressive growth of Blinkit, Zomato's quick commerce arm.

Blinkit's Growth Trajectory

• Blinkit's gross order value (GOV) has witnessed a significant 28% sequential growth in Q3, indicating a thriving business.

• The expansion of new stores and strategic customer engagement initiatives are propelling Blinkit's continued rise.

Market Potential for Zomato's Food Delivery Business

India's online food delivery market is experiencing exponential growth, with projections estimating a CAGR (compound annual growth rate) exceeding 20% year-on-year, reaching a potential value of $40 billion by FY33E (fiscal year ending March 2033). This market expansion translates to potential growth for Zomato's food delivery business GOV, even without acquiring a significant additional market share.

Analyst Predictions for Blinkit

Analysts at Kotak Institutional Equities anticipate a remarkable 99% year-on-year growth in Blinkit's GMV (gross merchandise value) and a 102% year-on-year jump in revenue.

Continued Improvement Expected from Blinkit

While Kotak predicts a slight decrease in Blinkit's quarter-on-quarter GMV growth (15% in Q4FY24 compared to 28% in Q3FY24), they still expect positive progress driven by new store additions and increased efficiency in existing stores. This growth is further supported by an anticipated rise in Blinkit's contribution margin (CM) to 3.3% of GMV, compared to 2.4% reported in Q3. As a result, Kotak forecasts a reduced EBITDA loss of ₹45.6 crore  compared to the ₹89 crore loss reported in Q3 (pre-Ind AS 116).

Zomato's Competitive Edge and Future Growth Strategy

Analysts remain bullish on Zomato's future, citing several factors that contribute to its competitive edge:

• Strong Food Delivery Segment: Zomato's core food delivery business maintains a solid foundation, further strengthened by the revitalization of Blinkit.

• Blinkit's Growth Potential: Analysts believe Blinkit will lead Zomato's next growth phase, driven by factors like:

  • Continuous store additions.

  • Improved efficiency in existing stores.

  • Growing customer adoption of 10-minute grocery delivery.

  • Increasing order sizes.

  • Expanding product offerings.

• Zomato's Market Share Gain and Monetization:

Zomato is expected to gain market share through strategies like:

• Enlisting more supplier restaurants.

• Promoting the Zomato Gold loyalty program.

• Capitalizing on the rising customer preference for online food ordering.

• Leveraging platform fees to monetize its technology platform.

Technical Analysis: Uptrend with Potential for Further Growth

Technical analysts also point towards continued upward momentum for Zomato's stock:

• Breakout from Rounding Bottom Formation: The stock's recent breakout from a rounding bottom formation on the weekly chart signifies a strong possibility for an upward move, bolstered by above-average volume.

• Uncharted Territory: Zomato's current stock price position offers additional room for potential growth.

• Upward Rising Channel on Daily Chart: The stock's adherence to an upward rising channel formation on the daily chart reinforces expectations for continued bullish movement.

• Technical Indicators Support Growth: Trading above all long-term moving averages suggests a positive trend and further strengthens the likelihood of additional gains.

Zomato's Target Price and Support Levels:

• Choice Broking anticipates a significant upside potential with a target range of ₹220-250.

• Support is expected to be around ₹165 in case of a downward trend.