“Our conversations with industry participants indicate that food delivery GMV growth may remain subdued in the near term owing to weak demand,” said Kotak
The brokerage has, however, retained a buy rating on Zomato shares, which are down over 58% from their 52-week high of Rs 142.4.
“We bake in slower food delivery GMV growth forecasts of 26/24/22% over FY2023/24/25 versus 32/30/30% earlier. We revise up our CM (contribution margin) assumptions to 4.3/4.5/4.9% from 4.0/4.2/4.6% of GMV, but continue to be substantially below Zomato’s mid-term guidance of 8% CM,” they said in a report.
Given the duopolistic market structure and large market potential, Zomato is Kotak’s preferred pick among internet stocks.
“We like Zomato’s comfortable market share position in a duopolistic market and believe the Indian delivery market has legs to grow, near-term slowdown notwithstanding,” the brokerage said.
After posting 35% year-on-year (YoY) food delivery GMV growth in 1HFY23, it expects Zomato’s food delivery growth to decelerate to 21% YoY in 2HFY23. “Although AOVs are likely to hold up due to inflation and relatively higher delivery charges, slower growth in orders will lead to slower GMV growth. This, in turn, is owing to weak consumer demand in what otherwise is a seasonally strong quarter for outdoor food consumption,” Kotak said.
Earlier in the month, global brokerage firm Jefferies exited Zomato saying that they are incrementally wary of a potential rise in competitive activity in the sector as its chief competitor Swiggy has recently seen market share loss.
At an overall level, brokerages remain bullish on the stock as Trendlyne data shows that out of 23 analysts with coverage on Zomato, 17 have buy ratings and only two suggest sell.
Kotak’s revised price target is closer to the average price target of Rs 86.8, which signals an upside potential of around 49%.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)