Zomato share falls 5% post deal to acquire Blinkit

Share of Zomato, the country’s largest food delivery company, fell over 5% in early trade on Monday, in an otherwise strong broader market, after the restaurant aggregator unveiled a plan to acquire e-grocery startup Blinkit (formerly Grofers). In a post hour announcement on Friday, the company said its board has approved the proposal to acquire Blink Commerce Private Limited (BCPL) for ₹4,447 crore ($569 million) in an all-stock deal.

Reacting to the news, Zomato shares opened 3.8% higher at ₹73, against the previous closing price of ₹70.35 on the Bombay Stock Exchange (BSE). Reversing opening gains, the stock fell as much as 5.5% to hit a low of ₹66.5 on the BSE. There was a surge in volume as 16.80 lakh shares worth ₹11.63 crore changed hands over the counter on the BSE as compared to the two-week average volume of 27.37 lakh stocks.

The share of homegrown food delivery major has had a bumpy ride post a stellar debut on Dalal Street on July 23, 2021. The stock had listed at a 51% premium over the issue price of ₹76 per share on the BSE, while it touched an all-time high of ₹169.10 on November 16, 2021. Zomato shares have had a dismal performance this year, with stock price falling more than 50% in 2022, from ₹141.35 on January 3 to ₹67.15 in intraday today. Currently, it trades near its listing price after hitting a 52-week low of ₹50.35 on May 11, 2022.

What spooked Zomato shares?

The share price of Zomato witnessed selling pressure on Monday after the company’s board approved a plan to acquire homegrown online grocery firm Blinkit. The deal is part of the company’s strategy to exploit online grocery retail, a business segment that has seen robust growth during the Covid-19 pandemic.

As per the deal, Zomato will acquire 33,018 equity shares of Blinkit for ₹4,447 crore at a price of ₹13.47 lakh per share. It will also issue up to 62.9 crore shares, equivalent to an equity stake of 6.88% on a fully-diluted basis, at an allotment price of ₹70.76 per share.

Commenting on the deal, Deepinder Goyal, founder and CEO of Zomato, says, “Quick commerce has been our stated strategic priority since the last one year. We have seen this industry grow rapidly both in India and globally, as customers have found great value in quick delivery of groceries and other essentials. This business is also synergistic with our core food business, giving Zomato the right to win in the long-term.”

“We are proposing to acquire Blinkit, a quick commerce business in India and where we first invested in August last year. This foray into the next big category is timely as our existing food business is steadily growing towards profitability – Zomato has grown at a CAGR of 86% in the last 4 years to an adjusted revenue of ₹5,540 crore ($710 million) while the adjusted EBITDA margin has improved from (153%) in FY19 to (18%) in FY22,” he added.