Zomato

Quick commerce is a bigger opportunity than modern retail or e-commerce, as it is disrupting general trade. Like other digital businesses, the existing 2-3 leaders should dominate after an initial period of intense competition. Blinkit has an additional moat due to the complexity of the quick commerce fulfillment model.

The low and declining profitability is not a cause for worry. This is an inherent feature of internet businesses – high losses in the initial land-grab phase followed by OpLev-led profitability as the business matures. Blinkit’s topline growth and market share are the important metrics, at this stage. Losses could continue for a few more quarters. An upside surprise could be profit-positive interventions by Zepto ahead of its IPO, when it happens.

Zomato’s 17% YoY GOV growth in food delivery for 3QFY25 was underwhelming, but appears to be a one-off from the excess seasonal pressures and the general slowdown in consumer spending. Our macro view is that discretionary consumption will recover in FY26, so this should be a passing phase.

Zomato trades at 7x EV/sales (FY26) and is undervalued compared with peers. We give it credit for its track record of innovation and execution – the management spotted the q-commerce opportunity when few others did. It also fits into two macro themes: the expected rebound in discretionary consumption in 2HCY25, and the greater value capture by digital disruptors in consumer businesses (detailed investment argument on Page 2).

Market update

The brutal correction in the market continues, with renewed FPI selling. This kind of price damage creates its own negativity but there are positive signs. The RBI’s move to reduce risk weights for NBFCs and micro-borrowers is a big positive. This should enable banks and NBFCs to lend more aggressively in retail segments, which would in turn aid the recovery in consumption. Also, the correction has de-frothed valuations, and the Nifty is attractively valued at below 22.5k (19.2x 1YF P/E). Financials is the best trade on the RBI easing, but we see this as an opportunity to lighten positions as valuations are still out of sync with medium-term growth. Our preferred sectors are Consumer Discretionary, Healthcare, and Telecom.

Read of the week – Taylor Swift!

This HBR analysis of Taylor Swift by Kevin Evers struck a chord at many levels. Evers’s framework of her success can be extended to businesses too. The last two behaviors, in my opinion, also reflect scenarios where most businesses falter and end up conceding leadership: maintaining productive paranoia and adapting to platform shifts. We see this in the two sectors we are structurally UW on – ie banking and staples. Companies shifted focus to productivity and profitability, neglecting innovation and creativity, and are now struggling to adapt to a new post-digital world with more democratized access to consumers.

Midweek Masala – New avatar

Our relaunched weekly has a new format. We will cycle through four themes every week – Idea of the Month (this week), Market HealthCheck, Stock Screeners, and Macrometer. We return to each theme every four weeks. We shall also be highlighting interesting reads and a market update, when necessary. We also have a section on the week’s movers and shakers on the inside pages. We will be publishing every Wednesday, and the data will capture the Wed-Tue cycle.