Zomato has emerged as the top pick for Indian mutual funds, with investments surging to Rs 10,200 crore in the third quarter of 2024. This significant investment boost comes as mutual funds have increasingly acquired shares of Zomato, making it the most purchased stock during the December quarter. The growth is attributed to the booming quick commerce sector in India's major cities, with services like Blinkit offering rapid delivery, leading to an increase in market activity.
Despite the optimism within India, foreign investors remain cautious due to heightened competition risks and concerns about profitability in the quickly evolving quick commerce industry. Zomato, which owns Blinkit, faces competition from players such as Zepto, Flipkart Minutes, and Tata’s BigBasket. Reports also suggest that Amazon is preparing to enter the field with its own rapid delivery platform, Amazon Tez, while Reliance Retail explores its 30-minute delivery service.
In terms of future growth, ICICI Securities has a positive outlook for the sector, forecasting that both Zomato and Swiggy will outperform broad indices by 2025. However, ICICI predicts that Zomato's growth will be slower, estimating a 27% increase, while Swiggy’s growth could reach 46%. ICICI credits Swiggy’s improved restaurant partner preference and the successful implementation of its BOLT and BLCK initiatives as key drivers of its market share growth.
Elara Capital's Karan Taurani remains confident that Blinkit will maintain its market leadership due to its higher average order values (AOV), a diverse product range, and attractive take rates. He believes that despite the traction gained by Swiggy's Instamart, Blinkit will hold onto its market position.
However, concerns about increasing competition persist, as deep-pocketed players like Amazon, Flipkart, and Reliance are expected to use aggressive strategies to protect their market shares. Jefferies downgraded Zomato’s rating from "buy" to "hold" and reduced its target price from $335 to $275, citing concerns about increasing competition and the potential negative impact on medium-term profitability.
In response, Zomato is planning to double its store count by 2026 to maintain its competitive edge, underlining its commitment to leading the market. However, analysts remain wary that competition from major players could affect the overall profitability of the quick commerce sector.
