Zomato: No Quick Returns Amid Steep Competition – Forbes India

Steep competition in the food quick commerce businesses and massive cash burns by Zomato and Swiggy are worrisome.
Image: Amit Verma

Shares of Zomato have slumped nearly 30 percent from the record highs touched on December 5, 2024, (at ₹304.5). The overall market sentiment has been weak in the last few months and, therefore, most stocks are under pressure. However, the issue of such heavy sell-off in Zomato’s and rival Swiggy’s shares is sector-specific. 

Steep competition in the food quick commerce businesses and massive cash burns by Zomato and Swiggy are worrisome. Some analysts even call the sharp discounts offered by Zomato and Swiggy ‘irrational’. In the last few months, competition in the space has heated up with newbie Zepto offering higher discounts with an aim to increase market share following aggressive store expansions.

The consequence on Zomato shares? Investors quickly dumped the stock. So far, this year, the stock has lost 22 percent starting January. However, it has been rewarding for those who bought its shares during its initial public offering in July 2021. At current rate, Zomato’s shares have surged 185 percent from its issue price of ₹76 apiece.

Abhisek Banerjee, analyst at ICICI Securities, however, thinks that concerns of high cash burns have been over-baked into the stock prices for both Swiggy and Zomato. “We think Swiggy (consolidated) is now trading at 30 percent discount to par value for the food delivery business, implying negative value for the optionality of success in quick commerce. Zomato, on the other hand, is trading at a value that ascribes nothing to quick commerce. We think this anomaly is unlikely to sustain long, especially given a robust outlook for discretionary consumption from May,” he says.