Zomato shares tank 7% on Flipkart’s likely foray into quick commerce. How brokerages view it
Zomato shares plunged 7% as Flipkart plans to relaunch Quick Commerce, but experts believe Zomato's quick commerce model is working well. Zomato's Q3 earnings exceeded expectations with strong growth. JM Financial suggests incumbents may consider M&A.
Shares of plunged 7% on Monday to hit the day's low of Rs 149 on the NSE on media reports which suggested that eCommerce market leader is gearing up to relaunch operations in the Quick Commerce (QC) segment over the next 6-8 weeks.Zomato operates its quick commerce service through Blinkit. The news report triggered a strong selling trend in the counter with over 2 crore shares changing hands on the NSE around 12 pm. The traded value of the shares stood at Rs 324 crore.
US brokerage Morgan Stanley in a note said that this development validated that the quick commerce model was working well and Flipkart's foray in quick commerce will only increase its relevance going ahead. Morgan remains 'Overweight' on the counter for a price target of Rs 180.
Morgan has projected adjusted EBITDA break-even for Blinkit in Q1FY25.
Domestic brokerage JM Financial sees these developments in line with its assessment that recent forays by incumbent QC players in beyond-daily essentials categories would force large e-commerce platforms to rethink their go-to-market strategies and consider the M&A route, so that they do not end up playing catch-up like in the case of Meesho in the value eCommerce segment.
With a market share of 46% in quick commerce, strong market leadership and robust balance sheet (net cash of Rs 12,000 as of December 2023), Blinkit is least likely to be affected amongst the incumbents, JM opined as it reiterated a 'Buy' on the stock.
In its view, Flipkart can potentially disrupt the existing QC industry structure but it is an execution-heavy business and Flipkart's earlier attempts had lacked intent. Off-late, the company has been in cost-cutting mode and is, therefore, unlikely to be very aggressive, JM said. Most QC incumbents have already built a decent scale and the QC TAM (total addressable market) is large enough for 3-4 players to thrive, this brokerage said.
Zomato's third-quarter earnings beat the estimates on the back of robust growth in food delivery and hyperpure businesses. Net profit jumped nearly 4x (283%) quarter-on-quarter (QoQ) to Rs 138 crore. An ET Now poll saw the figure around Rs 36 crore. The company had posted a loss of Rs 347 crore in the last year period. Revenue from operations in the third quarter increased 69% year-on-year to Rs 3,288 crore.
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Source: Stocks-Markets-Economic Times
