Hold Zomato Ltd For Targert Rs.250 By Axis Securities Ltd
Growth Bottoming Out; Competitive Intensity Remains
Est. vs. Actual for Q1FY26: Revenue – BEAT; EBIT Margin – MISS; PAT – MISS
Recommendation Rationale
* NOV Growth: Zomato's B2C business reported a 16% QoQ and 55% YoY increase in net order value (NOV), reaching Rs 20,183 Cr. The company’s consolidated revenue grew 70% YoY and 23% QoQ to Rs 7,167 Cr in Q1FY26, primarily driven by strong growth in the Quick Commerce segment, which saw a 127% YoY (25% QoQ) rise in NOV.
* Blinkit Quarterly Losses Peaked Out: The company added 243 stores during the quarter, taking the total store count to 1,544, and remains on track to achieve its target of 2,000 stores. NOV grew 127% YoY, led by 123% YoY growth in monthly transacting customers (MTC) from 7.6 Mn to 16.9 Mn over the past year. Management reiterated that if competitive intensity remains the same, it should see margins improve from here onwards.
* Food Delivery Outlook: The Food Delivery NOV grew 13% YoY due to subdued consumer sentiment; however, on a positive front, food business growth has bottomed and is expected to see demand recovery. Management expects the food business to grow15% in FY26 (+20% in FY27).
Sector Outlook: Cautious on account of increased competitive intensity.
Company Outlook & Guidance: Near-term margin pressure is likely owing to increased competitive intensity.
Current Valuation: SOTP
Current TP: Rs 250/share (Earlier TP: Rs 230/share) Recommendation: We believe competitive intensity is likely to see near-term volatility. Hence, we maintain our HOLD rating on the stock.
Financial Performance
In Q1FY26, Zomato Ltd. reported revenue of Rs 7,167 Cr, up 23% on a QoQ basis, whereas, on a YoY basis, revenue growth was 70%. The company reported operating profits of Rs 115 Cr and operating margins of 1.6%, down 260 bps YoY, due to higher operating costs on account of rapid store expansion. Net profit de-grew 90% YoY, reaching Rs 25 Cr.
Under the IOCC structure, Blinkit will gradually transition from marketplace to inventory ownership model over the next 2-3 quarters. Management reiterated that control of inventory will give more leverage on margins, plus it allows for pushing harder and faster assortment expansion. It expects 100 bps margin expansion over time under this model. In Q1FY26, ~3% of NOV was own inventory, which led to quick commerce revenue to grow faster than NOV at 155% YoY. It expects the share of inventory to increase sharply in the next quarter. Under this structure, Blinkit will become more resilient in the long term as it will yield higher ROCE and margin opportunity.
Outlook: From a long-term perspective, Zomato has built a resilient business model by securing multiple strategic verticals and delivering broad-based growth. However, near-term challenges— rising competitive intensity, rapid store expansion, and subdued demand in the food delivery business—are likely to keep profitability under pressure. Consequently, we maintain HOLD and value the stock at Rs 250/share based on an SOTP valuation, implying a -8% return from the CMP.
For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home
SEBI Registration number is INZ000161633
