Zomato’s quick commerce business is now more valuable than food delivery, says Goldman Sachs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Brokerage firm Goldman Sachs believes that the implied value of Zomato’s quick commerce business, Blinkit, is now larger than the parent’s core food delivery business.

Goldman Sachs wrote about this in its note while maintaining a ‘buy’ recommendation on the stock and raising the price target on the food delivery aggregator to ₹240 from ₹170 earlier.

The brokerage said the Street is still under-appreciating Zomato’s growth and profit potential in the online grocery segment.

Goldman Sachs is now valuing Blinkit at ₹119 per share at a $13 billion equity valuation. That’s higher than the food delivery business, which is being valued at ₹98 per share.

Zomato has been surprisingly positive on both profitability and the growth front, according to Goldman Sachs and the Gross Order Value (GOV) for Blinkit is nearly 50% higher than their estimate a year ago.

Blinkit is likely to see a compound annual growth rate (CAGR) of 53% in its Gross Order Value between the financial years 2024 and 2027, according to Goldman Sachs. This will also drive a 32% adjusted revenue CAGR for Zomato on a consolidated basis.

Zomato’s projected revenue CAGR is the highest within Goldman Sachs’ food delivery and India internet coverage.

Goldman Sachs sees further potential for Zomato’s valuation multiples to re-rate as it continues to improve profitability, particularly in the quick commerce business.

Despite the stock trebling in the last 12 months, it trades at the financial year 2026 price-to-earnings multiple of 48x or 0.9x price-to-earnings growth, which is significantly lower than the MSCI India / India Consumer Discretionary, which trades at 1.4x and 3.2x price-to-earnings-growth, respectively.

The brokerage highlighted that Zomato’s EBITDA margin is the highest among global food delivery platforms and a similar scenario is likely to play out in the quick commerce business, whose margins can exceed those of the food delivery vertical.

Of the 28 analysts that have coverage on Zomato, 24 have a ‘buy’ recommendation, while the rest have a ‘hold’ rating.

Shares of Zomato ended little changed on Thursday at ₹184.65, but the stock has risen 217% in the last 12 months.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow