Zomato’s stock surged 3% to ₹228.73, reflecting investor confidence following ICICI Securities’ reaffirmation of a ‘BUY’ rating on the company. The brokerage maintained its three-stage DCF-based target price of ₹310, citing stabilization in quick commerce discounting trends and a shift towards sustainable business growth.
Key Highlights from ICICI Securities Report on Quick Commerce:
- Discounting pressure easing: Peak discounting levels from Nov 2024 – Jan 2025 have moderated, with platforms now focusing on cart-level incentives instead of aggressive item-level discounts.
- Reduced marketing spend: A pullback in performance marketing expenses is expected to improve EBITDA conversion in the medium term.
- Shift towards sustainable growth: Investors have shown a clear preference for sustainable strategies over high cash burn, making prolonged aggressive discounting unsustainable.
Zomato’s Valuation & Growth Outlook
ICICI Securities values Zomato’s food delivery segment at ₹1.6 trillion ($19.6 billion) and its quick commerce unit at ₹966 billion ($11.4 billion). The company also holds a cash balance of ₹180 billion ($2.1 billion), providing financial strength for future expansion.
Comparative Valuation with Swiggy
- ICICI Securities also reiterated a ‘BUY’ on Swiggy, maintaining a target price of ₹740.
- Swiggy’s food delivery segment is valued at ₹998 billion ($11.7 billion), while quick commerce is pegged at ₹428 billion ($5 billion).
- Swiggy holds a cash balance of ₹90 billion ($1.1 billion).
Potential Risks Identified
ICICI Securities outlined key risks for Zomato and the broader quick commerce industry, including:
- A slowdown in discretionary spending could impact demand.
- External market disruptions that might affect long-term business performance.
Zomato’s rally suggests growing investor confidence in its long-term potential, despite ongoing challenges in the quick commerce space.
