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On Wednesday, BofA Securities revised its stance on Zomato (NSE:ZOMT) Limited (ZOMATO:IN), downgrading the stock rating from Buy to Neutral and reducing the price target to INR250 from INR300. The adjustment comes as BofA Securities anticipates increased losses in the quick commerce sector and a deceleration in the growth and margin expansion of the food delivery industry over the next 12 to 15 months.
Analysts at BofA Securities have expressed a cautious outlook on the immediate future of Zomato, citing concerns over consensus estimate cuts, with their forecasts being significantly lower than the market consensus for fiscal years 2026 and 2027 EBITDA. They predict that Zomato and Swiggy, another major player in the market, will face challenges due to these lowered expectations.
The firm also highlighted the intensifying competition within the industry. High discount rates and the impending entry of Amazon (NASDAQ:AMZN) into the market are expected to put additional pressure on existing companies. The analysts believe that these factors could contribute to further downside risks for Zomato’s stock.
Despite the downgrade, BofA Securities acknowledges Zomato’s advantageous position due to its scale and the first-mover advantage in the quick commerce sector. They note that Zomato’s lead could result in better unit economics, higher margins, and a stronger cash position, which justifies the Neutral rating as opposed to Swiggy’s Underperform rating.
The report concludes with a note on the potential for multiple de-rating, indicating that the current market valuations could adjust to reflect the anticipated challenges and risks ahead for Zomato.
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