Comments
Target: ₹100
CMP: ₹53.97
Our recent channel checks suggest sequential food delivery GOV growth is likely to remain muted for the third consecutive time in March quarter. Key factors affecting growth include continued inflationary pressures, growing share of dining-out and focus on profitability improvement (to support growth investments in adjacencies such as Blinkit and Hyperpure).
In fact, relaunch of the ‘Gold’ loyalty membership and closure of operations in 225 cities suggest the company sees high long-term value creation potential by mining high-quality customers (those whose ordering frequency is very high), rather than investing in expanding the long tail of customers ordering infrequently. While on the one hand this strategy could have an adverse impact on the near-term MTU trend (amidst weak macros), on the other hand it could accelerate profitability expansion.
Recent developments also suggest improvement in restaurant take-rates and decline in delivery cost could be much better than earlier anticipated, leading to accelerated profitability. Therefore, while we now forecast Zomato’s food delivery segment to grow at a CAGR of 21 per cent over FY23-27 vs the earlier estimate of about 25 per cent, contribution margin (as percentage of GOV) could reach about 7 per cent by FY27 vs FY34 expected earlier.
Our 15-year DCF-driven valuation remains unchanged, as the impact of growth moderation will be broadly offset by better profitability.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.