Shares of Zomato took a hit on Tuesday morning, falling nearly 5% after a downgrade from Jefferies. The brokerage firm lowered its target price for the company by 18%, raising fresh concerns over its profitability due to mounting competition in the quick commerce segment.
Zomato Faces Market Struggles Amid Intense Competition
Zomato’s stock saw a decline of 4.8% on January 7, 2025, dropping to Rs 252.05 on the Bombay Stock Exchange (BSE). The downward trend follows a downgrade from Jefferies, which moved the food delivery giant’s rating from “buy” to “hold.” Along with this, the brokerage slashed its target price from Rs 335 to Rs 275. This new target price aligns closely with Zomato’s closing price of Rs 264.6 the previous day.
The downgrade is the result of concerns over heightened competition, particularly in the quick commerce space. The competition from rivals such as Swiggy’s Instamart, Zepto, Amazon, and other players is threatening Zomato’s Blinkit business, challenging its profitability. As Zomato faces this fierce competition, analysts are questioning whether it can sustain its growth and earnings.
While Zomato’s performance in 2024 had been exceptional, with the stock surging over 130%, analysts predict that 2025 could bring about consolidation for the company. Jefferies cautioned that Zomato’s profitability might take a hit due to the escalating price wars in the quick commerce sector, leading to more aggressive discounting to maintain market share.
Revised Profitability Estimates and EBITDA Cut
Jefferies has revised its financial forecasts for Zomato following the downgrade. Earnings estimates for Blinkit have been notably reduced. The brokerage firm slashed its FY26-27 consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) projections by 12-15%. They have also halved Blinkit’s target multiple to just six times.
For the parent company, Zomato, Jefferies lowered its EBITDA estimates by 12% for FY26 and by 15% for FY25. Furthermore, profitability projections were cut back as well. Jefferies revised its earnings per share (EPS) expectations, decreasing them by 20% for FY26 and by 21% for FY27. This recalibration is seen as a reflection of the mounting pressures Zomato is facing.
As part of its 2024 performance, Zomato posted a 389% surge in its consolidated net profit, reaching Rs 176 crore for Q2. Despite this impressive growth, analysts are now focused on how the company plans to maintain this trajectory amidst an increasingly competitive market.
Increased Competition from Quick Commerce Rivals
Zomato’s biggest challenge at the moment is the fierce competition it faces in the quick commerce industry, specifically through its Blinkit service. Swiggy’s Instamart, Amazon, and newer players like Zepto are rapidly expanding their footprint, targeting the same customers Zomato’s Blinkit is trying to win over.
The competitive landscape has made it tough for Zomato to retain its dominance. Rivals are not just competing on price but also in terms of delivery speed, product availability, and customer experience. This has placed Zomato in a tough spot as it now faces the reality of needing to balance growth with profitability, a task made more difficult by increasing operational costs and the need for heavy discounting.
Key Concerns:
- Intense competition driving aggressive discounting
- Impact of pricing pressure on profit margins
- Blinkit’s struggle to maintain market share
- High customer acquisition costs and rising operational expenses
Zomato will need to come up with new strategies to manage these challenges, particularly as competition continues to heat up in the quick commerce sector.
Jefferies’ Expectations for Zomato in 2025
Looking ahead to 2025, Jefferies predicts a year of consolidation for Zomato. After a spectacular 2024, where the stock rallied more than 130%, analysts expect the company to face a more tempered period in the upcoming year. Despite this caution, Jefferies also acknowledged Zomato’s solid track record of execution and growth potential.
However, with the increased pressure from competitors, Zomato’s ability to grow at the same pace seen in 2024 could be limited. In addition, Jefferies highlighted that its forecasts were based on the assumption that Zomato would not engage in excessive discounting, which could hurt medium-term profitability. As such, the brokerage firm believes that the company might need to rethink its growth strategy in light of market conditions.
Zomato’s Impressive Growth in 2024 and the Road Ahead
2024 has been a stellar year for Zomato, with shares climbing significantly. The company joined the prestigious Sensex index, adding to the momentum created by its strong earnings report. Despite the concerns raised by Jefferies, Zomato’s 2024 performance shows that it still has the potential to succeed in the market, especially if it can adapt to the competitive pressures it’s now facing.
However, as analysts now take a more cautious stance, it’s clear that Zomato’s path forward will require careful navigation. With the reduced price target, the company’s investors will have to adjust their expectations and closely monitor the company’s next moves in a highly competitive and rapidly shifting landscape.
Table: Zomato’s Earnings and Profitability Estimates Post-Downgrade
| FY Year | EBITDA Estimate Change | EPS Estimate Change | Target Price (Rs) |
|---|---|---|---|
| FY25 | -15% | -18% | 275 |
| FY26 | -12% | -20% | 275 |
| FY27 | -12% | -21% | 275 |
Zomato now faces critical decisions as it tries to weather this storm of increased competition and maintain its profitability. For investors, it’s clear that the company’s outlook will depend heavily on how it addresses the current challenges in the quick commerce sector.
