Zomato Share Price: HSBC sees 30% upside in the stock with a focus on Blinkit. Should you buy?

Zomato shares recovered from the day’s low to trade in the green territory but the share price remained volatile as was the rest of the stock market on March 12.

The swing in the Zomato share price comes at a time when brokerage firm HSBC has raised its target price on the food tech stock to ₹200 from ₹163 earlier. This means the analyst expects the stock to rally almost 30% from the closing price of March 11.

With a buy call on the stock, HSBC argues that advertising revenues will be the backbone of quick commerce Blinkit business in the long term.

“Over a long-term horizon, we believe it’s quite likely that nearly the entire EBITDA margin (EBITDA to GMV ratio) for Blinkit will be driven by advertising revenues, while the core business revenues (take-rate) will compensate for the costs,” it said.

The brokerage note points out that advertising revenues are 3-4% of gross merchandise value (GMV) and HSBC expects this to rise to 5-6% in the next three to five years, similar to the EBITDA margin that it has in its model currently.

HSBC also expects Zomato’s digital spend share to increase in India and, within that, platforms to gain share thereby helping Blinkit. Within this spend, the brokerage expects the share of digital to increase from 38% currently to 44% by FY27e. Many digital marketers believe this share could go up even higher, it said citing an IPSOS State of Marketing report.

It explained that the majority of digital spending (80%+) is distributed across search platforms (like Google), videos (YouTube) and social media (eg, Facebook, Instagram). Other platforms (like e-commerce in particular) attract a 15% share of digital spend.

“We believe this share will rise from 15% to 18% in FY27. Digital ads on e-commerce or QC platforms like Blinkit are a lot more easily tracked compared with other platforms, like social media, and hence spenders will continue to shift their spending in favour of these platforms,” it said.

HSBC has also increased its order growth rate estimates for Blinkit to 25.4% from 21.4% for FY24-27e and GOV growth to 27.3% from 23.2% FY24-37e.

Zomato shares traded 0.26% higher at ₹155.20 on BSE at 1:30 pm.