With quick commerce becoming mainstream in top metros and cities, mutual funds are expected to spend Rs 10,200 crore on Zomato shares in the previous three months, making it the most acquired stock in the December quarter.
Last month alone, mutual funds paid around Rs 24,000 crore to acquire 145 crore shares of Zomato. In the December quarter, mutual fund holdings in the Sensex stock grew by 285 basis points, from 13.57% to 16.42%.
The overall number of mutual funds invested in the business increased from 36 to 38 during the third quarter. ICICI Prudential Balanced Advantage Fund, Axis Bluechip Fund, Kotak Flexicap Fund, UTI Flexi Cap Fund, and Nippon India Growth Fund are among the major investors.
Conversely, foreign investors are less excited about Zomato, as evidenced by their quarterly stakes dropping from 52.53% to 47.31%.
Chris Wood, global equities strategist at Jefferies, cut his stake in Zomato by 1% last week, claiming that although the stock is still a promising long-term story, the rising competition presents some short-term difficulties.
The global brokerage firm has downgraded the stock to hold and reduced the target price from Rs 335 to Rs 275. "We estimate Zomato's share price to double in 2024, followed by a year of consolidation. While valuations are not overly high in light of great execution and opportunity, we are concerned about the increase in quick commerce competition. Higher discounting will probably be the result of aggressive measures by incumbents and the introduction of new players, which could endanger medium-term profitability," according to Vivek Maheshwari, an analyst at Jefferies.
According to experts, Blinkit, a rapid commerce platform owned by Zomato, may see higher growth in Q3 as it reacts to Zepto's aggression and competition from Flipkart Minutes and Tata-owned BigBasket. However, there may be some short-term margin trade-offs.
Blinkit has already set a goal to more than double the number of its stores between 2024 and 2026. According to media sources, Reliance Retail is also apparently investigating a speedier delivery format of about 30 minutes, and Amazon is scheduled to launch Amazon Tez.
"This would likely impact industry profitability, which is now our key worry, given players like Flipkart, Amazon and Reliance are deep-pocketed and may face compulsion to protect their turf," Maheshwari stated.
ICICI Securities, however, thinks that given the quicker pan-India ramp-up and the heightened competitive intensity, both factors will contribute to the delayed profit delivery from quick commerce.
Over 2025, Swiggy and Zomato are probably going to do better than the overall indices.
"Nevertheless, given the current prices, we favor Swiggy above Zomato. Swiggy's upside is 46%, while Zomato's is 27%. We see that the results of our poll indicate a gradual improvement in restaurant partners' preference for Swiggy. Additionally, Swiggy has demonstrated excellent performance with Swiggy BOLT and Swiggy BLCK. We believe Swiggy may overtake Zomato in the near future in the meal delivery market," it statement.
The brokerage wants to charge Rs 310 on Zomato and Rs 740 on Swiggy.
Karan Taurani of Elara Capital thinks that despite Swiggy's Instamart's recent success, Blinkit will continue to hold its dominant position in the market due to greater AOV (average order value), more selections, and higher take rates.
