Jefferies’ India Model Portfolio: Jefferies has exited Zomato, Bharti Airtel in their India Model Portfolio, according to a report from their Equity Strategy team. As regards Zomato, analysts at Jefferies said that they remain incrementally wary of a potential rise in competitive activity in the sector as its chief competitor, Swiggy, has recently seen market share loss.
In a November 23 report, titled Zomato or Swiggy: Who Blinks First, the equity strategy team noted Swiggy’s loss in market share despite its aggression with discount offers and its flagship scheme.
The change in stance with respect to Zomato is a complete reversal from nearly a month ago (November 13), when the stock was a high-conviction ‘buy’ for Jefferies with a price target of Rs 100.
In a report titled “Night is darkest just before the dawn’, the analysts had given the stock a high-conviction buy call with the target price set at Rs 100, when the stock had lost 67% from its listing price, to trade at around Rs 42. Despite the explosion of unflattering memes, the brokerage reiterated its buy call in a report titled “Fear has overshadowed greed”.
This confidence in the stock was visible even as recently as December 5, 2022, when their report titled Analyst Top Ideas listed Zomato as one of their buy calls.
“Following a ~60% correction from the peak, the stock now trades at 1.0x 1Y forward blended EV/GMV and 3.5x EV/Revenue. While this is at a premium to global & regional peers, this is justified in the context of long growth run-way along with higher explicit medium-term forecasts on GMV (~30% for Zomato Food del vs. 10-20% for peers),” it stated.
“We also see a consistent improvement in profitability in food delivery despite a strong 30% Cagr over FY22-25E (well ahead of global/regional peers). Our PT of Rs100 implies a 50% upside to CMP,” the report added.
Zomato’s market share at 55% was at the highest and its profitability had improved strongly but the foodtech company had to compromise on growth, partially due to a tough macro, according to the report. They predicted a difficult few months ahead for both players and saw a strong case for Swiggy to drop its aggressive stance to reduce its losses. In case Swiggy didn’t back down, then Zomato “may be induced to increase its aggression to drive growth.”
As far as Bharti Airtel is concerned, Mahesh Nandurkar, managing director, Jefferies in a recent coauthored note with Abhinav Sinha, said: “We remove Bharti Airtel from our model portfolio as our analyst highlights concerns on rising 5G capex, likely not compensated near-term by tariff hikes. We also shave off some weight from Maruti (potential headwind to discretionary consumption due to slower wage hikes / IT hiring) to banks.”
After taking out the foodtech company and cash, and shaving off some weight from Maruti and select banks, the strategists have added Tata Steel and Hindalco.
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