Food delivery aggregator Zomato has hopped on an aggressive store expansion spree for its quick commerce business, Blinkit. This expansion has driven up investment costs, inflating Blinkit's losses and squeezing Zomato's net profit in Q3. Despite the stock taking a hit after Zomato's weak Q3 numbers, optimism among brokerages seems to remain unhinged.

Shares of Zomato have plunged over 12 percent since its Q3 numbers were announced during market hours on January 20. At 09.23 am, shares of the company were trading at Rs 224.15 on the NSE. Shares of Zomato recorded a nearly 9 percent fall in today's session, its steepest decline since June 2024.

Brokerage firm Nomura takes cognizance of the intensifying competition in the quick commerce space, but believes Blinkit is well-positioned to secure a top-two spot in the market, citing strong execution and a robust balance sheet as key advantages.

Similarly, Jefferies remains optimistic about Blinkit's strong execution record and stated that Zomato's aggressive expansion may prompt competitors to follow suit. The brokerage also remains confident over the management's aim to double Blinkit's store count to 2,000 by December 2025, one year ahead of previous guidance. However, Jefferies trimmed its price target for Zomato by 7 percent to Rs 255, retaining a 'hold' rating to bake in the sharp decline in the company’s bottom line.

Much like Jefferies, research firm Bernstein also holds an optimistic stance over Zomato's aggressive dark store addition plan for Blinkit as it doubled down on quick commerce. The firm also praised the better-than-expected margin shown by Zomato's food delivery business in Q3, which it expects to stabilize at 5 percent adjusted EBITDA.

Bernstein reiterated its 'outperform' call with a price target of Rs 310, noting that the stock’s recent correction is driven by concerns over competition in the quick commerce space.

Nuvama Institutional Equities also echoed a similar sentiment, stating that Blinkit's dark store additions are outpacing expectations, driving faster growth. "While profitability may face short-term delays due to higher upfront costs for store openings. We believe this bunching up of cost

for dark store addition shall hurt profitability in the short-term, but shall ultimately lead to bunching up of profitability in future quarters as these stores mature," Nuvama said.

Nuvama Institutional Equities echoed similar sentiments, stating that Blinkit's dark store additions are exceeding expectations and driving faster growth. "While profitability may face short-term delays due to higher upfront costs for store openings, this concentration of expenses will ultimately lead to stronger profitability in future quarters as these stores mature," Nuvama explained. The brokerage cut its price target for Zomato by 8 percent to Rs 300 but retained a 'buy' call.

Zomato reported a 57 percent decline in its December quarter profit as margins faced pressure from increased spending on opening more centers to support Blinkit's quick commerce operations. The consolidated net profit dropped to Rs 59 crore in Q3, compared to Rs 138 crore a year ago.

However, revenue from the food delivery business grew nearly 22 percent during the quarter, while Blinkit's revenue surged more than twofold. "On a QoQ basis, consolidated Adjusted EBITDA declined by 14 percent (or Rs 45 crore), despite improved food delivery margins. This was primarily due to accelerated investments in expanding our quick commerce store network, leading to quarterly losses increasing by Rs 95 crore QoQ," Zomato stated in an exchange filing.