What fueled the 17% monthly rise in Zomato share price?

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Why is Zomato share price rising?

By stealing a glance at Zomato’s current share price of Rs 74, one may mistakenly conclude that it has remained more or less static when compared to its IPO price of Rs 76.

Yet, the journey of the Zomato share price over the past two years has been anything but static. From touching its peak of about Rs 155 levels to experiencing lows of Rs 47, the Zomato stock has had a tumultuous ride so far.

However, the stock has admirably recovered from its lowest levels to hover near its IPO price again with the last month seeing the stock rally 17%.

So, what is propelling the Zomato share price recently? Is the rally on sustainable legs? Are analysts optimistic about the Zomato share price? Let’s try and decode!

Zomato share price: Reasons for rally

Stellar results: Zomato reported blowout results for the March quarter with losses narrowing and revenues rising significantly.

Revenues jumped by 70% from the previous year to Rs 2,056 crores marked by robust growth in the food delivery and hyperpure business. Notably, the newly acquired quick commerce business BlinkIT also reported revenues of 362.5 crores, lending strength to the overall topline.

Critically, the company also stemmed its losses considerably. Net losses almost halved from Rs 359.7 crores in the March ‘22 quarter to Rs 187.6 crores in the March ‘23 quarter.

Consequently, riding on these strong numbers, the Zomato share price has expectantly rallied over the past month.

Product innovations: Not only the stellar results, the rally in the Zomato share price has also been helped by some key modifications made by the company with regards to its products.

For instance, at the turn of the year, Zomato re-introduced its Gold plan. Initially, it was launched at a subscription price of Rs 149 for three months, however the plan’s fees have now been hiked to Rs 299. Yet, it remains lower than rival Swiggy’s Rs 399 Swiggy One program.

Moreover, Zomato has also introduced differential pricing models to reward high frequency customers on its platform while at the same time attracting customers who use the platform less frequently.

Consequently, these product innovations are expected to result in an improvement in contribution margins for the company in the near future, thus aiding profitability growth.

Increased institutional buying: Another reason for the rally in the Zomato share price can be attributed to the recent institutional buying witnessed in counter.

Notably, in May, mutual funds bought shares worth Rs 4,785 crore in May. Further, mutual fund buys are generally for the long haul and inflows of such a huge amount in the stock has helped the rally in the Zomato share price in the past month.

Zomato share price: Analyst target price

Morgan Stanley: The renowned global brokerage has a “Buy” rating on the stock with a price target of Rs 85. Sustained growth visibility and new launches in the app has been cited by the firm as key drivers of Zomato share price rise in the near term.

Jefferies: The renowned global brokerage has a “Buy” rating on the stock with  a price target of Rs 100. Strong performance displayed by the Blinkit business, coupled with higher restaurant commissions and cost efficiencies have been highlighted by the firm as strengths that has the ability to drive the Zomato share price higher in the near term.

Kotak Institutional Equities: The top domestic brokerage has a “Buy” rating on the stock with a price target of Rs 82.

Citi: The leading global brokerage has a “Buy” rating on the stock with a price target of Rs 76. The firm believes that Zomato has the wherewithal to withstand the competitive pressure which in turn can lead to the share price growth.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.