
Foreign brokerage Nomura started following Zomato and set a target price of Rs. 50 and a “Reduce” rating. The target indicates a potential 18.56% decline from the closing price of Rs. 61.40 on Friday.
Nomura India stated that achieving a double-digit contribution margin in the food delivery (FD) industry is a difficult task and that it anticipates Zomato’s food delivery business to reach profitability by Q1FY24, excluding Blinkit, at the adjusted Ebitda level. It claimed that in a market with a duopoly, disciplined execution would drive this.
Zomato reported earlier this month that its food delivery service had achieved profitability. By March 2023, the food aggregator, based in Gurugram, hopes to achieve overall break-even.
Zomato’s long-term goal of achieving a double-digit contribution margin “depends on a rise in commissions from restaurants (we expect it to rise from 15% in FY22 to nearly 17.5% in FY31F) and charging higher customer delivery fees (we believe this would be difficult, and expect it to remain steady at 6%),” it said.
The brokerage anticipates a contribution peak of 7.5% margin overall. In markets where online FD is more established and consumers are more willing to pay for convenience, it anticipates a 4.5% adjusted Ebitda margin on gross order volumes (GOV) by FY31 compared to global FD companies’ long-term targets of 4-8%.