Kotak Institutional Equities has issued a resolute BUY recommendation for Eternal (Zomato), setting a fair value target of Rs 300 per share, compared to the current market price of Rs 261. The report signals robust growth prospects, especially in Blinkit, while acknowledging near-term margin pressures and strategic investments in emerging business verticals. Investors are advised to monitor competitive dynamics and profitability milestones as the company navigates rapid expansion and operational recalibration.

Zomato’s Strategic Momentum and Investment Thesis

Kotak Institutional Equities’ latest research underlines Zomato’s (Eternal) dynamic growth trajectory, driven by robust performance in both food delivery and quick commerce (Blinkit). The brokerage reiterates a BUY call, projecting a fair value of Rs 300, underpinned by an 18% year-on-year (yoy) growth in food delivery and a staggering 124% yoy surge in Blinkit’s gross merchandise value (GMV) for 1QFY26. While operational costs and competitive intensity remain key watchpoints, the report highlights Zomato’s disciplined execution, margin expansion, and a clear roadmap toward profitability for Blinkit. The analysis also factors in elevated investments in new initiatives such as the ‘District’ platform, with a prudent adjustment to near-term earnings estimates but a more optimistic medium-term outlook.

Kotak’s Investment Rationale: BUY Call and Target Levels

Strategic Rating and Target:
Kotak Institutional Equities maintains a BUY rating on Zomato, with a revised fair value of Rs 300 per share. The current market price stands at Rs 261, offering a potential upside of approximately 15%. The stock’s 52-week range is Rs 305-190, and its market capitalization is Rs 2,523 billion.

Investor Guidance:

Entry Level: Rs 261 (Current Market Price)

Target: Rs 300 (12-month fair value)

Stop Loss: Not explicitly mentioned, but investors should monitor for any significant deviation in margin trajectory or competitive landscape.

1QFY26 Earnings Preview: Growth Engines and Margin Dynamics

Food Delivery: Sustained Momentum
Zomato’s food delivery GMV is projected to reach Rs 109 billion in 1QFY26, marking an 18% yoy and 12% quarter-on-quarter (qoq) increase. This rebound surpasses the 16% growth in 4QFY25, which was dampened by a leap year effect and delivery rider shortages.

Margin Compression in Food Delivery
Contribution margin (CM) as a percentage of GMV is expected at 8.2%, down 40 basis points (bps) qoq but up 90 bps yoy. The sequential dip is attributed to higher delivery costs, particularly due to early monsoons impacting rider availability. Adjusted EBITDA margin is forecast to decline by 10 bps qoq to 4.3%.

Blinkit: Hyper-Growth and Path to Profitability
Blinkit continues its meteoric rise, with GMV anticipated to soar 124% yoy and revenues by 113% yoy. Store count is forecast to hit 1,551 by period end. Contribution margin is expected to improve marginally to 3.2% of GMV, while adjusted EBITDA loss is projected at Rs 1.8 billion, flat qoq.

Key Operational Metrics and Segmental Performance

Quarterly Financial Snapshot
Below is a concise summary of Zomato’s quarterly performance and projections:

Take Rate Expansion
Restaurant and customer delivery take rates are expected to remain stable, with annualized rates for FY26E at 24.6% and 3.6% of average order value (AOV), respectively.

Segmental Outlook: Blinkit, Hyperpure, and New Initiatives

Blinkit: Store Expansion and Margin Inflection
Rapid store additions and throughput ramp-up are the primary growth levers. While this elevates fixed costs in the near term, Kotak expects Blinkit to approach adjusted EBITDA break-even by 4QFY26.

Hyperpure: Steady Growth
Hyperpure, Zomato’s B2B supplies arm, is forecast to deliver 75% yoy revenue growth in 1QFY26, with adjusted EBITDA losses remaining contained.

‘District’ and ‘Going Out’ Business: Investment Phase
The ‘District’ initiative, focused on scaling customer acquisition, is expected to incur elevated expenses, prompting a downward revision in FY2026 EPS. However, medium-term profitability for Blinkit is revised upward, supporting the overall investment case.

Valuation, Earnings Revision, and Financial Projections

Fair Value and SoTP Analysis
Kotak’s sum-of-the-parts (SoTP) valuation assigns Rs 135 per share each to the core food delivery and Blinkit businesses, with investments and net cash adding Rs 30 per share, culminating in a fair value of Rs 300.

Key Financial Estimates (FY2025-28E):

Earnings Revision:
FY2026 EPS is trimmed to reflect higher ‘going out’ expenses, but medium-term (FY27-28) profitability is revised higher for Blinkit, supporting the new fair value.

Risks, Monitorables, and Strategic Watchpoints

Competitive Intensity and Cash Burn
Kotak notes a moderation in quick commerce competition, with lower cash burn by a key rival. However, the possibility of renewed price wars remains a risk.

Profitability Milestones
Investors should closely track Blinkit’s path to adjusted EBITDA break-even and Zomato’s ability to sustain margin expansion in core segments.

Execution in New Verticals
The success of new initiatives like ‘District’ will be crucial for long-term value creation and diversification beyond food delivery.

Bottomline: Investment Thesis and Action Points

BUY Recommendation Reaffirmed
Kotak Institutional Equities’ research underscores Zomato’s compelling growth narrative, with Blinkit providing a powerful engine for expansion. The Rs 300 target offers meaningful upside for investors willing to navigate near-term volatility in exchange for structural growth and improving profitability.

Actionable Insights:

Accumulate Zomato at current levels (Rs 261) with a 12-month target of Rs 300.

Monitor Blinkit’s profitability trajectory and competitive dynamics.

Stay alert to execution in new business initiatives and margin trends.