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Capital Markets

Zomato valuation could soar to $6.7 billion in 10 years, Morgan Stanley says

Competition triggers consolidation, with Swiggy, Zomato emerging leaders

MUMBAI (NewsRise) -- Zomato Media, an Indian internet startup, could fetch as much as $6.7 billion valuation in 10 years, Morgan Stanley said, underscoring the potential of online food delivery in the second-most populous country in the world.

India's online food ordering market is surging, thanks to a rising tide of younger, tech-savvy population. Still, the boom in the crowded sector has triggered a consolidation with several startups shutting down amid stiff competition and a funding shortage.

Established players such as Swiggy and Zomato have fought the downturn to emerge leaders in the nascent market. Zomato is currently processing 2.5 million orders per month in India, while Swiggy, the market leader, is clocking 3 million to 4 million orders a month.

According to analysts, food delivery in India is likely to be a two-to-three player market, where Zomato is set to outperform Swiggy, thanks to its acquisitions and a classified platform.

Morgan Stanley expects unprofitable Zomato to be valued at $2.5 billion in the next fiscal year, 2.5 times more than the value it assigned in the last round of funding more than two years ago. The company is likely to clock revenues of $1.32 billion with 27% operating margin by 2027. During this period, the company is set to grab a 44% share of India's online delivery market, compared with the current 18%, it said.

"Zomato has a unique advantage over its competition - its leading classified platform," Morgan Stanley said. "We believe this creates a network effect for its food ordering business and drives customer acquisition costs lower."

To be sure, competition in the sector is likely to remain stiff with the entry of several deep-pocketed rivals. Last month, ride-hailing service Ola said it agreed to buy the local operations of food delivery start-up Foodpanda, marking its entry into the food delivery business. Ola is also investing $200 million in Foodpanda.

Rival Uber, which launched Uber Eats in India in August, is expanding into six Indian cities in six to 12 months. Last year, Google too started a food delivery and home services app in India called Areo.

Both Zomato and Swiggy are drawing the attention of global internet majors such as China's Alibaba Group Holding and Japan's SoftBank Group, which are reportedly seeking to pick stakes in these companies.

Shares of Info Edge, the parent of Zomato, closed down 2% in Mumbai trading, while the benchmark S&P BSE Sensex gained 0.7%.

--Dhanya Ann Thoppil

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