Quest Investment Managers has notably increased its holdings in Zomato Ltd. following a recent stock market correction, signaling strong conviction in the company's long-term prospects. Rakesh Vyas, CIO and portfolio manager at Quest, indicated that the firm perceives the recent dip in Zomato's share price as a strategic buying opportunity rather than a cause for concern.
Strategic Bet on Blinkit's Unit Economics
At the core of Quest's optimistic outlook for Zomato is its quick commerce division, Blinkit. Vyas highlighted Blinkit's position as the largest player in a competitive market, noting its superior unit economics compared to rivals like Swiggy, Zepto, Amazon, and Flipkart. According to Vyas, Blinkit's EBITDA margins are nearing breakeven, occasionally achieving slight profitability, which is a critical factor in a capital-intensive sector.
Cash Reserves Support Growth Without Aggressive Burn
The investment firm emphasizes that Zomato's substantial cash reserves, estimated at Rs 18,000-20,000 crore, provide a crucial advantage. This strong financial position allows the company to pursue expansion and growth initiatives without the need for aggressive cash burn, a common challenge for rapidly scaling businesses. Quest believes that this financial prudence, combined with improving profitability, holds more weight for institutional investors than mere percentage growth figures.
Echoes of Food Delivery's Path to Profitability
Vyas drew a parallel between Blinkit's current trajectory and Zomato's earlier food delivery segment. He recalled that food delivery was initially loss-making but now generates an EBITDA margin of approximately five to six percent. Quest's thesis posits that quick commerce could be approaching a similar inflection point, transitioning from cash consumption to operational leverage as it achieves greater scale. If this projection holds true, Zomato's current valuation could be considered significantly undervalued in the long run.
Long-Term Vision Amid Market Skepticism
Despite a prolonged correction in Zomato's stock, which saw prices fall from around Rs 354 to the Rs 260-280 range, Quest's core investment thesis remains intact. The firm views the correction not as a signal to average down mechanically, but as a compelling risk-reward scenario relative to other opportunities within their portfolio. Zomato currently constitutes nearly six percent of Quest's holdings, underscoring the firm's significant confidence in the company's fundamental business strength across both food delivery and quick commerce.