Axis Securities has initiated coverage on India's food delivery giant Zomato with a buy call. The target price is pegged at ₹280, implying a 22 per cent upside potential from the stock's July 31 closing of ₹229.50 on the BSE.
Zomato share price closed 1.01 per cent higher on the BSE on Wednesday, July 31. In the last one year, shares of the company have surged by a whopping 173 per cent.
The stock hit its 52-week high of ₹232 on the BSE on July 15 this year and its 52-week low of ₹80.99 on August 3 last year.
According to the brokerage firm, steady profitability improvements and significant loss reductions in Hyperpure and quick commerce support Zomato's growth.
"We are confident that Zomato's expansion in the quick commerce sector is supported by a consistent enhancement in profitability and a notable reduction in losses within the Hyperpure and quick commerce domains," said Axis Securities.
Axis expects Zomato to strengthen its presence in the food-delivery market and gain market share by continuously adopting new technology and introducing innovations which will continue to drive more users to the platform.
Axis is positive about Zomato as it sees huge scope for growth in the food delivery business.
"The urban population in India currently accounts for nearly 34-35 per cent of the total population. Projections indicate that by 2030, this urban population is anticipated to witness a significant increase, reaching nearly 42-43 per cent of India's total population," said Axis.
"This rise in urbanisation presents a notable market potential for businesses, with evolving preferences and demands of the urban consumer base," Axis said.
"Food consumption in India contributes a quarter of India's GDP, of which 10 per cent is driven by restaurant food. This is likely to grow as India is one of the youngest nations, with a median age of 28. Moreover, the growing internet penetration in India will provide long-term support for the growth of the food-delivery business," the brokerage firm observed.
Moreover, Axis Securities believes Hyperpure and quick commerce (Blinkit) verticals will drive Zomato's revenue growth.
Quick commerce, despite intense competition, offers Zomato a significant market opportunity, as even a small market share in this space can potentially drive substantial revenue growth.
"The huge market potential presents a great opportunity for Blinkit, given its market leadership. We believe that the leading position is likely to be strengthened on account of strong execution – (1) faster expansion, (2) a wider assortment of SKUs (stock-keeping units) and categories, (3) higher ATUs (average transacting users), and (4) synergies between Hyperpure (supply platform for restaurants) and Blinkit," said Axis Securities.
Axis expects Blinkit’s GOV (gross order value) to rise at a CAGR of 38 per cent over FY24-30E to touch the $10.5 billion mark as the brokerage firm believes Blinkit’s market share is growing better than its peers.
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