Zomato Shares Drop 5% Following Jefferies Downgrade to 'Hold'

A leading global brokerage, Jefferies, has downgraded Zomato’s stock to a "hold" rating, attributing the change to the significant surge in the stock's value throughout 2024 and rising concerns over increasing competition in the quick commerce market.

After witnessing a more than twofold rise in Zomato share price in 2024, Jefferies analysts anticipate that 2025 may mark a phase of price consolidation rather than rapid gains. Reflecting this outlook, the firm has reduced its price target for Zomato by 18% to ₹275.

This cautious forecast weighed on investor sentiment, leading Zomato’s stock to decline by 5% during early trading on January 7. By 9:32 AM, shares were trading at ₹254.90 on the NSE. The recent decline means that the stock has shed nearly 16% of its value over the past month.

While Jefferies acknowledged that Zomato’s valuations remain reasonable given its strong performance and market opportunities, the firm highlighted concerns about heightened competition in the quick commerce sector. It noted that intensified market strategies, such as steep discounts by existing and new players, could pressure Zomato’s medium-term profitability.

Key competitors, including Blinkit (owned by Zomato), Swiggy’s Instamart, Zepto, and Amazon, are all vying for a dominant share of the quick commerce segment.

Consequently, Jefferies has revised Blinkit's EBITDA forecast for FY26-27 downward and cut its valuation multiple for Blinkit in half to 6x. For Zomato as a whole, Jefferies slashed its EBITDA estimates by 12% for FY26 and 15% for FY25, with projected profitability reductions of 17% for FY26 and 18% for FY27. The firm also reduced its Earnings Per Share (EPS) estimates by 20% for FY26 and 21% for FY27.

In contrast, Morgan Stanley maintained an "overweight" rating on Zomato, reaffirming its price target of ₹335. The brokerage continues to see Zomato as a standout choice within India's internet sector.

Morgan Stanley remains optimistic about Zomato’s profitability initiatives and believes that its improved growth trajectory could result in a 33% compound annual growth rate (CAGR) in revenue over FY25-27, despite growing market competition. The brokerage also highlighted Zomato's consistent growth in its active user base and its strong profitability track record as key strengths.