17 May 2017 India | Internet | Company Update Info Edge | BUY Zomato: Out to deliver Global food-tech has crossed the peak of inflated expectations in the hype cycle of its evolution. Abhishek Kumar Investments in this space declined 28% in 2016, after reaching a peak of USD 5bn in 2015. India
[email protected] | Tel.: (91 22) 6630 3057 is no different with a 56% drop in investments, resulting in significant consolidation. This should Pankaj Kapoor discourage the ‘spray-and-pray’ strategy of investors, going forward. We view this situation as
[email protected] | Tel: (91 22) 66303089 healthy, as it will allow capital to flow to the stronger scale players. Zomato and Swiggy have emerged as clear leaders in the food ordering space in India. We find Zomato’s asset light model (no delivery fleet) more sustainable. Also, Zomato’s captive user and restaurant base gives it an edge in food ordering. Valuations of listed players, after correcting for the past two years, have started to inch up again. Zomato’s valuation in its previous funding round may now appear optically high in that backdrop. However, its market leadership in a large (USD 15bn) Recommendation and Price Target underpenetrated Indian food delivery market justifies the premium valuations, in our view. Current Reco. BUY Global food-tech—past the inflection point: Online food and grocery is the largest e- Previous Reco. NR commerce category globally with a c.USD 350bn market size. It is also the least Current Price Target (12M) 1,010 penetrated segment (>5% in the US).