Zomato shares drop 5% after Jefferies downgrades stock, cuts target price by 18% to ₹275

Shares of food aggregator Zomato fell 5 per cent on Tuesday, January 7 after global brokerage Jefferies downgraded the stock to ‘Hold’, according to media reports. The brokerage also reduced its target price for Zomato by 18 per cent from ₹335 to ₹275, indicating just over 9 per cent upside potential. The downgrade comes as the brokerage believes rising competition and discounting pressures will impact the company’s profitability.

Jefferies’ Concerns

Jefferies highlighted concerns about intensifying competition in the quick commerce segment, where Zomato’s Blinkit faces challenges from rivals like Swiggy’s Instamart, Zepto, Amazon, and other emerging players. This competitive landscape is expected to exert pressure on Zomato’s profitability due to aggressive discounting strategies and heightened market penetration efforts by its competitors, the brokerage believes.

The brokerage firm predicted that 2025 would likely be a year of consolidation for Zomato after the stock’s impressive rally in 2024, during which it more than doubled in value. While Jefferies acknowledged Zomato’s strong operational execution and growth potential, it emphasised the risks associated with sustained discounting and competition.

In response to these challenges, Jefferies significantly lowered its earnings projections for Blinkit, reducing FY26-27 consolidated EBITDA estimates by 12-15 per cent and halving Blinkit’s target valuation multiple to 6 times. For Zomato overall, Jefferies cut FY25 EBITDA estimates by 15 per cent and FY26 estimates by 12 per cent. Profitability forecasts also saw a reduction, with FY26 estimates down 17 per cent and FY27 estimates lowered by 18 per cent. Furthermore, Jefferies reduced its earnings per share (EPS) projections by 20 per cent for FY26 and 21 per cent for FY27.

Views from Other Brokerages

Despite Jefferies’ cautious stance, other brokerage firms maintain a more optimistic outlook on Zomato. Morgan Stanley reaffirmed its ‘Overweight’ rating, assigning a target price of ₹355. 

“India’s quick commerce segment is gaining momentum within the retail market, supported by robust execution in food delivery and quick commerce, a solid balance sheet, and a significant profit pool projected by 2030, keeping us overweight (OW) on the stock,” stated the global brokerage firm in its report.

Morgan Stanley’s overweight rating on Zomato is underpinned by the company’s advantage from a favourable industry landscape in food delivery, combined with its market leadership and superior unit economics.

Similarly, Bernstein included Zomato in its top stock picks within its Indian Strategy report, indicating continued confidence in the company’s growth trajectory.

Stock Price Performance

The stock fell as much as 4.9 per cent to its day’s low of ₹251.60, extending losses to the third straight session. Just in January, it has shed 9 per cent following an over half a per cent fall in December.

However, in the last one year, the stock has rallied almost 99 per cent. Notably, Zomato recently joined the 30-stock Sensex index after delivering 130 per cent returns in 2024.

Currently, the stock is over 17 per cent away from its peak of ₹304.50, hit in December 2024. Meanwhile, it has surged almost 107 per cent from its 52-week low of ₹121.70, recorded in January 2024.

Q2FY25 Financial Performance

Zomato reported a robust financial performance for the second quarter of FY25 (Q2FY25). Profit after tax (PAT) soared fivefold to ₹176 crore, compared to ₹36 crore in Q2FY24. However, PAT declined by 30 per cent from ₹253 crore in Q1FY25.

Revenue from operations surged 69 per cent year-on-year (YoY) to ₹4,799 crore in Q2FY25, up from ₹2,848 crore in the same quarter of the previous fiscal year. The impressive topline growth reflects Zomato’s ability to scale its operations despite challenges in the competitive landscape.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.