Zomato shares drop 5%; Q2 expectations revealed

Shares of Zomato Ltd witnessed a sharp decline of nearly 5% on Monday, falling to ₹ 261.75, significantly below its previous closing price of ₹ 275.20. The stock has lost over 12% since reaching its 52-week high of ₹ 298.20 just two weeks ago. 

Despite this dip, brokerage firms remain optimistic ahead of Zomato's Q2 earnings report and Swiggy's anticipated IPO. The share market investment community is keenly watching how these developments might impact the company's future performance.

Positive outlook from brokerage firms

Kotak Institutional Equities projects strong Q2FY25 results for Zomato, driven by a 23% YoY growth in food delivery gross merchandise value (GMV) and a 114% YoY increase in GMV from its quick commerce arm, Blinkit. The brokerage anticipates improvement in Zomato's contribution margin (CM) due to take rates and advertising income better. Although Blinkit's EBITDA performance may remain similar to the first quarter due to aggressive store expansions, Kotak has maintained a 'buy' rating on Zomato with a fair value target of ₹ 315.

Similarly, Elara Capital has praised Zomato's outperformance in average order value (AOV), food delivery gross order value (GOV), and profitability. With Zomato leading its competitor Swiggy in most metrics, Elara believes that Zomato's share market investment appeal remains strong. They have set a target price of ₹ 320 for Zomato shares.

Swiggy's IPO and its potential impact

Swiggy, Zomato's main rival, is gearing up for its ₹ 10,350 crore IPO, which could stir competition in the food delivery space. According to Morgan Stanley, if Swiggy focuses on gaining market share, Zomato could face increased pressure. However, if Swiggy directs its capital towards profitability and the growing quick commerce sector, it would align with market expectations for Zomato, potentially strengthening its position as a leading share market investment.

Key takeaways

• Zomato shares dipped 5% amid rising selling pressure, closing at ₹ 261.75.
• Brokerage firms remain optimistic, with Kotak and Elara maintaining 'buy' ratings ahead of Q2 results.
• Swiggy's upcoming IPO could increase competition, but it might also positively impact market dynamics depending on capital allocation.