Zomato tanks 8% as investors give thumbs-down to Blinkit deal

Shares of food delivery company Zomato Ltd. fell over 7% on Tuesday, registering a decline in the stock price for the second consecutive session after it unveiled plans to acquire quick commerce startup Blinkit for ₹4,447 crore.

Zomato was trading at ₹60, down 8.5% on the National Stock Exchange (NSE) today. The scrip has fallen over 13% in the last two trading sessions.

The stock of the food delivery platform has had a rollercoaster ride ever since it got listed on stock exchanges last year. Shares of Zomato listed at a 51% premium over the issue price of ₹76 on BSE, taking its market cap to over ₹1 lakh crore. The food ordering app's stock touched an all-time high of ₹169.10 on November 16, 2021.

But, this year has been tough. The stock has crashed 57% on a year-to-date basis. It hit a 52-week low of ₹50.35 on May 11.

On Friday, Zomato said it will acquire around 33,018 equity shares of Blinkit for ₹4,447 crore in an all-stock deal. Zomato will also acquire Blinkit's warehousing and ancillary services business for ₹60.7 crore.

"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," Deepinder Goyal, founder and CEO of Zomato, said while announcing the deal.

Meanwhile, brokerages expect the company's margin to improve owing to lower delivery costs through better fleet utilisation and a reduction in marketing expenses. Morgan Stanley last month reiterated its "overweight" rating on the counter with a target price of ₹135.

Better unit economics in the food delivery business, stable losses in other segments and tight control over overhead costs have led to narrowing of operating loss, the brokerage said.

Jefferies has a "buy" rating on the stock with a target price of ₹100. "The company's plans to lower delivery cost through better fleet utilisation would aid margins," it said.

Zomato had last year invested around ₹745 crore to acquire around 9% stake in Blinkit. In March this year, Zomato committed to give a short-term loan of up to $150 million to the quick commerce startup.

The food ordering app's net loss widened over two-fold to ₹360 crore in the fourth quarter. Revenue from operations jumped 75% year-on-year to ₹1,211.8 crore in the January-March period compared with ₹692.4 crore in the same quarter of the previous fiscal.

Zomato's average monthly transacting customers were at an all-time high of 1.57 crore in the March quarter compared with 98 crore in the same quarter of the last fiscal.