Zomato's Return Potential, Blinkit's Growth Headroom Can Help Stock Rise 16%

Bernstein Research is bullish on Zomato Ltd. as it expects the quick commerce business' margins to improve along with its asset-light model. Benefiting from scale and multiple margin levers, Zomato is best positioned among the India internet stocks to deliver a positive return on invested capital, the brokerage said in a note on June 20.

The brokerage maintains its 'outperform' rating on Zomato with a target price of Rs 230 per share, implying a potential upside of 16% from the previous close.

Return on invested capital improved from (-)42% in financial year 2021 to (-)0.8% in the last fiscal, it said. "We expect Zomato to achieve a positive ROIC going forward — expected to expand from 9% in FY25 to 35% in FY30."

Quick commerce has emerged as the strongest growth engine and Bernstein expects quick-commerce gross merchandise to exceed food delivery by fiscal 2030. Improving advertisement revenue and platform fee hikes remain the key catalysts for margin expansion, Bernstein said.

Blinkit is currently under-penetrated in the top 10 cities in India and the brokerage expects a 2–3% headroom to improve take rates, driven through advertisement spending.

Bernstein expects Blinkit to grow at over 40% year-on-year. The company expects adjusted Ebitda for Blinkit to remain at break-even levels over the next few quarters as it prioritises growth, the note said.

The macro environment remains favourable through lower delivery and labour costs in India, with further operating leverage. Zomato is building an asset-light model with limited capital expenditure and the growth in quick commerce requires less capex, driven by a franchise-led model, according to a note.