Zomato share price gained over 2 per cent in early trade on Tuesday as brokerages maintained their bullish view on the stock after its rival Swiggy’s performance improved in 2023, showing increased traction in the food delivery and quick commerce sector.

Foreign brokerage CLSA said listed company Zomato Ltd is growing faster than Swiggy on key parameters, as retained its ‘Buy’ rating on the stock with a target of Rs 248 apiece. CLSA, which has been increasing its price targets for Zomato since May 2023 (Rs 80 then), said Swiggy’s overall gross order value (GOV) including food delivery and quick-commerce grew 26 per cent YoY in FY24, which lagged Zomato’s corresponding growth of 36 per cent during the same period.

CLSA said Swiggy’s overall revenue growth of 24 per cent YoY in FY24 was also lower than Zomato’s adjusted revenue growth of 55.9 per cent YoY. Besides, while Swiggy’s trading losses got reduced to $158 million in FY24, Zomato reported a positive Ebitda of $5 million for the same period.

CLSA said Swiggy’s core food delivery GOV grew double digits in FY24 but Zomato’s growth was higher at 22 per cent YoY. “If we assume a 10 per cent/20 per cent GOV growth for Swiggy’s food delivery GOV, it would be 74 per cent/80 per cent of Zomato’s food delivery GOV for FY24,” it said.

Among other parameters, Swiggy had 387,000 active delivery partners against Zomato’s 4,18,000. Also, Swiggy Instamart had 487 active dark stores compared to 526 for Blinkit.

Investment risks in Zomato includes subdued urban consumer sentiment hindering growth, high competitive intensity, and regulatory strictness. Significant consumer adoption of the ONDC network could have some negative impact on take rates, which is also a key risk, it said.

CLSA values Blinkit at a 30 per cent discount to its 67 times PE multiple used for DMart. It believes, given profitability for DMart is much higher and the business model is more stable, such a discount for Blinkit is valid.

“For our target price’s other half, we base our DCF on 25 years of explicit forecasts to better model the growth opportunity for consumption in India, as we believe low penetration levels, rising incomes and a young population offer a long runway for sales growth. We discount our cashflow assumptions at a WACC of 14.4 per cent and use a 4 per cent terminal growth rate beyond our explicit forecasts,” CLSA said.

According to Emkay Global Financial Services, Zomato’s higher growth has been aided by the superior performance of its Quick Commerce.

After turning EBITDA positive in March 2023, Swiggy’s food delivery profitability improved on account of operating leverage with additional revenue streams, whereas overall losses narrowed to $261 million in 2023 from $531 million in CY22.

“Swiggy’s performance reflects the continued traction of Food Delivery and rise of Quick Commerce,” said Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services.

Zomato share price has rallied over 10 per cent in the last one month, while the stock has jumped more than 63 per cent year-to-date (YTD). Zomato shares have delivered multibagger returns of over 172 per cent in one year.

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