Zomato-owned Blinkit delivery workers on strike, but analysts see up to 30% returns ahead

India's food delivery industry is all set to grow rapidly in the medium term driven by intensifying internet penetration, rising consumption and growth in urbanisation. Zomato is a dominant player in the industry and analysts at Motilal Oswal forecast the company to report 29 per cent revenue CAGR over FY23-25.

Initiating coverage on the stock with a 'Buy' rating and target price of ₹70, the brokerage house expects strong growth to be complemented by the company turning profitable over FY25, despite elevated competitive intensity.

"With the exit of Amazon, the food delivery market is now a settled duopoly with Zomato (55% market share) and Swiggy (45%). The market has a very high moat given the significant capital requirement to displace the incumbents," the note stated.

Blinkit delivery executives on strike: Should investors worry

Blinkit delivery executives servicing 50 per cent of the dark stores in the NCR area are on strike since 12 April, 2023, demanding roll-back of recent changes made to delivery incentive structures in the region, said domestic brokerage firm ICICI Securities.

The brokerage believes strikes/agitations are unavoidable in the sector given the large exposure to an urban ‘blue-collared’ workforce. It noted that Swiggy had also faced pushback in Chennai last September when they revised their incentive structures.

However, given that the strike at Blinkit is happening in the national capital and has already garnered political attention, we think the company should try to resolve the issue at the earliest. This could be through a combination of clearer communication on expected change in earnings for delivery executives and / or some concessions on the delivery fee.

Q4FY23 preview

Zomato is expected to report a strong 29 per cent revenue CAGR over FY23–25 fueled by higher penetration, higher proportion of transacting users, and increased ordering frequency.

Food delivery GOV to remain flat sequentially in Q4FY23E (+14.2% YoY) despite Zomato Gold activation.

"Slowing growth was evident in GOV due to post-Diwali consumption fatigue and the online-to-offline shift," said ICICI Securities.

However, based on sustained improvement in the underlying operating metrics, the brokerage maintains a 'Buy' rating on Zomato with a DCF-based target price of ₹65.

"We acknowledge that further slowdown in growth poses a risk to our FY24E/FY25E estimates, but we think, at CMP, the risk reward is still skewed to the upside," the note said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.