Zomato’s share price took a hit today, dropping over 5% in early trading following a downgrade from global brokerage firm Jefferies. The firm has changed its rating on Zomato to a ‘hold’ due to concerns over rising competition and the stock’s impressive gains in 2024.
Current Market Price
As of January 7, 2025, at 1 PM IST, Zomato shares are trading at approximately ₹252.85, reflecting a decline of about 5% from the previous day’s close. The stock has seen significant volatility, with a 52-week high of ₹304.70 and a low of ₹121.60.
Key Details of the Downgrade
- Price Target Cut: Jefferies has reduced its price target for Zomato by 18%, bringing it down to ₹275 per share from a previous target of ₹335.
- Performance Overview: Over the past month, Zomato shares have dropped more than 14%, and they have fallen over 9% in the last five trading sessions alone.
Analyst Insights
Jefferies analysts noted that while Zomato’s valuation is not excessively high given its strong execution and market opportunities, they are concerned about the increasing competition in the quick-commerce sector. The report highlighted that aggressive strategies from existing players and new entrants could lead to deeper discounts, threatening Zomato’s medium-term profitability.
- Competition Concerns: The quick-commerce landscape is becoming increasingly crowded with competitors such as Swiggy’s Instamart, Zepto, Amazon, and Flipkart vying for market share alongside Zomato’s Blinkit.
Financial Performance Review
Despite the recent downturn, Zomato reported impressive financial results in Q2 FY25:
- Profit After Tax (PAT): Increased fivefold to ₹176 crore, up from ₹36 crore in the same quarter last year.
- Revenue Surge: Revenue from operations rose by 69% year-on-year to reach ₹4,799 crore.
Recommendation: Buy or Sell?
Given the current market conditions and Jefferies’ downgrade, investors should approach Zomato shares with caution:
- Hold Position: For existing shareholders, it may be prudent to hold onto shares for now while monitoring market developments and competitive dynamics.
- Potential Buy Opportunity: New investors may consider entering at this lower price point if they believe in Zomato’s long-term growth potential, especially given its strong revenue growth and market position.
Conclusion
The downgrade by Jefferies has raised concerns among investors about Zomato’s future performance amid growing competition. While the stock has experienced significant gains over the past year, analysts recommend caution as the market adjusts to these new dynamics.
Disclaimer
This article is based on information available as of January 7, 2025. Investors should conduct their own research and consult with financial advisors before making any investment decisions regarding Zomato shares.
In summary, as Zomato navigates through competitive pressures and adjusts to market expectations following Jefferies’ downgrade, stakeholders will be closely monitoring its performance in the coming months
