Driven by Zomato’s food delivery business and Blinkit’s GMV growth, homegrown brokerage firm Kotak Institutional Equities has retained its ‘buy’ rating on the stock with a target price of Rs 305, as it expects the company to perform well in the third quarter.
This implies an upside potential of 22.3% for the stock from current levels.
“We expect food delivery to report sequential contribution margin improvement driven by higher platform fees. Rapid store additions at Blinkit (moving towards 1,000-store target) and higher customer acquisition costs (CAC) may weigh on EBITDA margins,” Kotak Equities said in its report.
The brokerage firm expects 19% YoY growth in food delivery GMV and 114% YoY growth in Blinkit GMV.
Additionally, contribution margin is estimated to reach 7.8% of GMV, indicating an improvement of 20 basis points quarter-on-quarter. This growth is attributed to an increase in restaurant take-rate and the implementation of a Rs 10 platform fee per order. Adjusted EBITDA margin is expected to increase from 3.5% to 3.7% of GMV.
Commenting on Blinkit’s performance, Kotak’s report highlighted that the quick-commerce segment continues to see strong growth, with Blinkit’s GMV expected to grow 114% year-on-year, along with 124% revenue growth. The business is maintaining its strong momentum, with revenue growth estimated at 24% quarter-on-quarter.
While contribution margin remains stable at 3.8%, EBITDA loss is expected to widen to Rs 13.2 crore primarily due to expansion-related costs.
“The Blinkit business is performing well led by addition of new stores and improving customer engagement. In the near term, Blinkit’s profitability will be deferred due to the intensity of competition, but it will remain one of the best-run businesses from a unit economics perspective,” said Garima Mishra of Kotak Equities.
The report further added that Zomato’s investments in its ‘going out business’ as well as ‘Hyperpure’ could create additional value in the medium term.
Food delivery, Blinkit’s GMV growth may drive Zomato shares rose 22%: Kotak Equities
