Zomato Shares Rise 3% After Blinkit Funding, Bernstein’s Upgrade

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Zomato shares saw a 3% increase following fresh capital infusion into Blinkit and a positive call from Bernstein’s upgrade . The brokerage reaffirmed its ‘outperform’ rating on Zomato with a target price of ₹310 per share, representing a potential 39% upside. The quick commerce sector is becoming increasingly competitive, with major players like Swiggy and Zepto also expanding aggressively. Despite this, Bernstein believes Zomato is positioned well to maintain its leadership in the segment. The firm also noted that the intense price wars seen in the past may not return, given Swiggy’s lower margin structure. Additionally, Zomato’s inclusion in the Nifty 50 index, effective March 28, 2024, has increased investor confidence. This news comes as Zomato continues expanding Blinkit’s operations, aiming for 2,000 stores by December 2025. The company’s strategy is to balance growth with medium-term profitability while navigating the challenges of the quick commerce market.

1. Zomato’s Business Model and Growth Strategy

1.1 Founding and Business Model

Zomato was founded in 2008 by Deepinder Goyal and Pankaj Chaddah as a restaurant discovery platform. Over the years, it evolved into one of India’s largest food delivery and quick commerce companies. The company operates primarily through an online-to-offline (O2O) business model, connecting consumers with restaurants and grocery stores while managing logistics through its delivery partners.

1.2 Revenue Model

Zomato generates revenue through multiple channels:

1. Food Delivery Fees – Charges commission from restaurants for each order placed via the platform.
2. Subscription Services – Zomato Gold and Pro provide exclusive discounts and faster deliveries to members.
3. Advertising – Restaurants pay for visibility and promotional campaigns on the platform.
4. Blinkit (Quick Commerce) – Revenue from grocery and essential item deliveries.
5. Hyperpure – Supplies ingredients and raw materials to restaurant partners.
6. Intercity Food Delivery – Delivers specialty foods across cities.

2. Zomato’s Financial Performance and Market Trends

2.1 Recent Financials

• Revenue Growth: Zomato reported a 64% increase in revenue, reaching ₹5,404 crore in Q3 FY24.
• Net Profit Decline: The net profit dropped 57% year-on-year to ₹59 crore, primarily due to growth investments.
• EBITDA Margin Improvement: EBITDA stood at ₹162 crore, with a margin expansion from 1.6% to 3%.

2.2 Blinkit’s Growth

• Blinkit’s revenue surged 117% year-on-year and 21% quarter-on-quarter.
• Despite the growth, Blinkit posted an EBITDA loss of ₹30 crore, compared to a profit of ₹48 crore in the previous year.
• Zomato plans to accelerate Blinkit’s store expansion, aiming for 2,000 stores by December 2025, a year ahead of schedule.

3. Impact of Bernstein’s Rating and Market Response

3.1 Bernstein’s Positive Outlook

• Bernstein’s maintained ‘outperform’ rating with a target price of ₹310, suggesting a 39% upside.
• The brokerage believes quick commerce will outperform other retail sectors in India.
• It foresees Zomato benefiting the most due to its strong market position.

3.2 Investor Confidence Boost

• Zomato’s inclusion in the Nifty 50 index from March 28, 2024, is expected to increase its stock visibility among institutional investors.
• Analysts believe the company’s balanced growth approach will enhance long-term shareholder value.

4. Industry Trends and Competitive Landscape

4.1 Quick Commerce Competition

• Swiggy, Zepto, and Reliance-backed Dunzo are aggressively expanding their quick commerce operations.
• While competition remains intense, Bernstein sees a rational limit to price wars due to Swiggy’s lower margins.
• Zomato’s growth strategy focuses on expanding reach while maintaining profitability.

4.2 Future Growth Prospects

• Expansion into Tier 2 and 3 cities is a key growth driver.
• Diversification beyond food delivery into new verticals like Blinkit and Hyperpure strengthens Zomato’s long-term sustainability.
• Strategic acquisitions and partnerships could further fuel growth.

5. Learning for Startups and Entrepreneurs

5.1 Importance of Diversification

Zomato’s transition from a restaurant discovery platform to a full-scale food delivery and quick commerce giant highlights the importance of business model evolution. Startups should diversify their revenue streams to sustain long-term growth.

5.2 Managing Competition

While competition is inevitable, Zomato has successfully balanced aggressive expansion with profitability. Startups must identify their competitive advantage and invest strategically to maintain a leadership position.

5.3 Investor Confidence and Market Positioning

Bernstein’s endorsement and Zomato’s Nifty 50 inclusion show that strong financial performance and strategic expansion can boost investor confidence. Startups should focus on securing funding while ensuring financial discipline.

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