Shares of Zomato witnessed a remarkable surge, soaring over 2 percent to reach a 52-week high of Rs 137.5. This upswing followed a positive endorsement from global brokerage firm HSBC, which not only issued a “buy” rating on the stock but also adjusted the target price to Rs 150, reflecting a 9 percent upside from the current levels.
Over the past month, Zomato has outpaced the benchmark Sensex, exhibiting a robust 15 percent growth. Despite potential challenges in the upcoming calendar year, analysts at HSBC maintain a constructive long-term outlook for Zomato.
They, however, caution about the company’s vulnerability to any deceleration in the growth of its quick commerce business, identifying it as a key downside risk.
Echoing the optimism, analysts at Elara Securities have also advocated a “buy” recommendation and assigned a target price of Rs 150. They attribute Zomato’s enhanced profitability in the food delivery sector to increased convenience fees, advertising income, and restaurant commissions.
The brokerage firm anticipates a further 10-20 basis point expansion in the take rate for FY25E and FY26E, driven by an additional convenience fee of Re 1 in select markets.
The gradual rise in the convenience fee, now accounting for approximately 0.9 percent of the average order value (AOV), is not expected to significantly impact consumers. Zomato’s strategic move to raise its platform fee for food delivery services by 33 percent, from Rs 3 to Rs 4 per order in key markets starting January 1, reflects the company’s commitment to strengthening its revenue streams.
Zomato’s proactive approach in implementing a convenience fee of Rs 2 per order in August 2023, subsequently raised to Rs 3 by month-end, has proven effective.
This fee has played a pivotal role in driving a noteworthy 60 basis points quarter-on-quarter growth and an impressive 220 basis points year-on-year expansion in the take rate (19.4 percent, excluding delivery charges) during Q2FY24.
As of 10:45 am, Zomato’s stock is trading at Rs 137.30 on the BSE, marking a 1.97 percent increase from the previous close.
With positive sentiments from leading analysts and a strategic focus on revenue optimization, Zomato continues to command attention as a promising investment in the dynamic food delivery market.