Brokerage house JM Financial Institutional Securities Ltd slashed food delivery aggregator Zomato Ltd's growth estimates over FY23-27.
The brokerage house reduced the estimates of the food delivery company after its channel checks indicated that sequential food delivery gross order value (GOV) growth is likely to remain muted for the third consecutive quarter in Q4FY23.
The brokerage report states that the main variables influencing the growth are the continuance of inflationary pressures, the rising share of dining-out, and the emphasis on profitability enhancement.
"We now forecast Zomato’s food delivery segment to grow at a CAGR of c.21% over FY23-27 versus the earlier estimate of about 25%, contribution margin (as % of GOV) could reach nearly 7% by FY27 versus FY34 expected earlier," said the brokerage.
However, the brokerage is still bullish about the company's long-term prospects in the hyperlocal delivery market. It thinks that the company is well-positioned to gain from strong industry tailwinds like rising income share of digitally native millennials and GenZ and improving tech penetration.
The brokerage has a 'buy' rating for the stock with unchanged target price of ₹100.
Zomato should be able to reclaim some of the market share it lost in the two most recent reported quarters with the introduction of the 'Gold' membership, but the brokerage thinks that sequential growth of MTUs and order volume in Q4F23 could be difficult.
"We expect sequential recovery in Q1FY24 due to IPL seasonality and the low base effect. From a medium-term perspective, however, we now expect Zomato to report compound annual growth rate (CAGR) growth of c.21% over FY23-27 due to its growing focus on high-quality growth and the fact that penetration of the online channel in the organised food services market is already quite high at nearly 33%, meaning incremental gains could be slower than in the past," explained the brokerage.
Going ahead, the brokerage anticipates Blinkit to continue to achieve high sequential GOV growth of low-teens in quarter ended March, as it believes that the firm is very young and has a preference towards essential/non-discretionary spend.
The company acquired the quick commerce business in August 2022.
"Growth would likely be volume driven as AOVs are likely to shrink due to the company’s focus on enhancing the customer experience and expanding the transacting base. We also expect both contribution margin and adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin to increase due to improvement in take-rates, slowing competitive intensity, and delivery partner related cost efficiencies," said the brokerage.