.png){kind=logo}
Zomato has emerged as a strong player in India’s e-commerce and food delivery sector, with its stock currently priced at ₹242 and a market cap of ₹2,13,663 crore. Despite facing competition from domestic and international players, Zomato continues to display resilience. This analysis examines the stock’s recent performance, its strengths and weaknesses, peer comparison, and what the forecast suggests for investors.
Zomato stock has experienced significant growth in recent years. Currently, it trades at ₹242, a considerable climb from its 52-week low of ₹112. The stock reached a high of ₹298 this year, showing the growing investor confidence in the company's future. However, with a P/E ratio of 288, Zomato’s valuation appears high, especially when compared to industry averages.
The company’s Return on Capital Employed (ROCE) of 1.14% and Return on Equity (ROE) of 1.12% are relatively low, indicating a modest return on investment. Additionally, Zomato's book value per share is ₹24.1, and the stock trades at 10.1 times its book value, suggesting premium pricing for future growth potential rather than current earnings.
Debt-Free Status: Zomato is almost debt-free, which gives it the financial flexibility to invest in expansion without the burden of heavy interest payments.
Improved Working Capital Cycle: The company’s working capital requirements have been reduced from 191 days to 46 days, showcasing efficient management.
Positive Quarter Expectations: The company is projected to perform well in the coming quarters, supported by strategic initiatives and expansion plans.
High Valuation: Zomato’s stock trades at 10.1 times its book value, which might raise concerns about overvaluation.
Low Return on Equity: With a three-year ROE of -4.80%, the company’s profitability metrics remain underwhelming.
Significant Other Income: The earnings include a large “other income” component of ₹911 crore, which raises questions about core operating profitability.
Zomato has shown growth in terms of revenue and reduced losses over recent quarters. Sales have increased from ₹1,024 crore in Sep 2021 to ₹4,799 crore in Sep 2024. However, expenses have also risen from ₹1,560 crore to ₹4,573 crore over the same period, which limits profit margins. Operating profits have turned positive, moving from a loss of ₹536 crore in Sep 2021 to ₹226 crore in Sep 2024, with an operating profit margin (OPM) improvement from -52% to 5%.
Other income has played a role in stabilizing Zomato’s bottom line, contributing ₹221 crore in the latest quarter. Depreciation and interest expenses have risen, reflecting ongoing investments in assets and infrastructure. Net profit has shown a steady improvement, moving from significant losses to a modest profit of ₹176 crore in the latest quarter.
Zomato competes in the dynamic e-commerce and app-based aggregator industry. Here’s how it stacks up against its peers:
Info Edge (India): With a P/E of 151.62 and a market cap of ₹97,436 crore, Info Edge has a more moderate valuation. Its return on capital employed (ROCE) is higher at 3.65%, and it also offers a small dividend yield of 0.29%.
Swiggy: Swiggy remains a privately held competitor, valued at ₹87,298.60 crore. Although Swiggy is a close competitor in the food delivery space, its financials indicate a significant net profit loss, with a quarter profit variation of -611.01%.
One 97 (Paytm): Trading at ₹751.85, Paytm has a market cap of ₹47,872.76 crore and a highly volatile profit variation. Despite its presence in fintech, Paytm’s loss-making status highlights the challenges faced by tech-driven companies.
IndiaMart InterMesh: IndiaMart, trading at ₹2,428.25 with a P/E of 33.81, offers a stronger ROCE of 23.93%. This company demonstrates consistent growth with a more conservative valuation.
Just Dial: At a price of ₹1,112.75 and a P/E of 30.39, Just Dial has shown robust quarter-over-quarter growth with an ROCE of 4.81%. It remains a significant player in the app-based aggregator segment with a steady revenue stream.
Zomato’s high P/E and modest ROCE suggest that its valuation is driven by anticipated growth, while competitors like IndiaMart and Just Dial offer lower valuations with better profitability metrics.
The provided chart for Zomato’s stock displays its performance trajectory over the past two years and includes a forecast for the next year. The following insights can be drawn:
Historical Growth: Zomato’s stock price experienced an upward trend until it peaked around September 2024. This growth aligns with improved financial performance and expansion in operations.
Projected Performance: Forecasts indicate a potential price range from ₹100 to ₹370 by 2025. The maximum forecast suggests a 52.86% increase, while the minimum forecast indicates a potential 58.69% decline.
Average Projection: The average forecast positions the stock at ₹296.25, which is a 22.39% increase from the current level. This middle ground suggests optimism among analysts, driven by expected improvements in operating margins.
Risk Factors: The low-end projection at ₹100 highlights the risk of market correction or potential underperformance, which investors should consider.
Expansion in New Markets: Zomato’s ventures into non-food services, such as grocery delivery and intercity food, could contribute to future revenue growth. This diversification strategy aims to capture a broader customer base beyond traditional food delivery.
Operational Efficiency: With improvements in its working capital cycle and reduced operating losses, Zomato has laid the groundwork for better profitability. A continuation of these trends would support stock price stability and growth.
Macroeconomic Environment: Rising interest rates and inflation may impact consumer spending in India. While Zomato has shown resilience, a prolonged economic downturn could affect its revenue growth.
Competition: With companies like Swiggy and new entrants in the market, Zomato faces the challenge of maintaining its market share. Strategic partnerships, technology upgrades, and customer engagement initiatives are critical to remaining competitive.
Expansion in Intercity Food Delivery: Recently, Zomato announced the expansion of its intercity food delivery service, allowing customers to order specialities from different cities. This unique offering differentiates Zomato in the crowded food delivery market and could lead to additional revenue streams.
Strong Quarterly Growth: Zomato’s recent quarter showed an impressive 68.5% increase in sales, indicating robust demand and effective marketing strategies. This strong performance has boosted investor confidence, as reflected in the stock’s resilience.
Improved Cost Efficiency: Zomato has taken steps to streamline operations, which has led to improved profitability margins. With working capital days reduced to 46 days, the company has managed to optimize cash flow and reduce dependency on external funding.
Zomato’s current price of ₹242 reflects a combination of growth potential and high valuation expectations. Its debt-free status, efficient working capital management, and expansion efforts strengthen its position in the competitive e-commerce and food delivery industry. However, challenges such as low ROE, high P/E ratio, and reliance on “other income” for profitability highlight areas for improvement.
Investors should closely monitor Zomato’s upcoming quarterly results and progress in new ventures, such as intercity delivery. While the stock holds growth potential, the forecast indicates a range of possible outcomes, with the price potentially reaching up to ₹370 or falling to ₹100 by next year. Strategic expansion, cost efficiency, and innovation will be essential to meet growth expectations and deliver sustained shareholder value.
