Zomato Outlook: Within a few weeks of listing on the stock exchanges, its prices are at a premium of 71 per cent over the IPO price. Many domestic and foreign brokerage firms believe that the stock price of Zomato may strengthen further, but HSBC has started coverage of this online food delivery company with ‘Reduce’ rating. HSBC in its report last week said that the food delivery industry in India is on the verge of a significant transition from home cooked food to restaurant food and is now about to become a product of its own. According to the report, the growth prospects are better in the long term but in the short term the market may over-estimate its growth. At present, its shares are at a price of Rs 130. According to HSBC, the shares of Zomato can fall by up to 15 percent and for this the target price has been kept at Rs 112.
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These are the big challenges before Zomato
According to analysts at HSBC, Zomato is not for those who are cautious about calories or investors who are cautious about the valuation of Zomato. According to the brokerage firm, most Indians do not have a good perception about outside food. Apart from this, according to HSBC, it is not easy to shift towards Zomato e-grocery as it will require more cash. Apart from this, according to HSBC analysts, the third biggest challenge before Zomato is with respect to valuation, due to which the company’s growth is looking aggressive.
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According to HSBC analysts, Zomato has improved unit economics but the chances of its survival are slim. In the near to medium term (post-COVID19), Zomato’s sales may increase due to increase in orders from offices, but this will reduce the average order value. According to HSBC, in the current financial year 20211-22, the average order value may decline by 5 percent and after that it may see an additional decline of 6 percent.
Competition not a problem for Zomato
Talking about the competition, analysts are not considering it as a challenge for Zomato. For this, HSBC analysts compared the discounts of Zomato and Swiggy across more than 150 restaurants in more than six cities of the country. According to analysts, Swiggy offers more discounts but customers have not shifted from Zomato like Swiggy. On the other hand, Zomato is also facing a tough competition from Amazon, which gives more discounts on par with Swiggy, but currently its presence is only in Bangalore.
(Article: Kshitij Bhargava)
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