Shares of online food delivery and restaurant discovery platform Zomato fell around 7 percent in the afternoon deals on Monday.
The scrip had a positive start earlier in the day opening over 3 percent higher following the announcement of a deal to acquire quick commerce delivery firm Blinkit for Rs 4,447.5 crore.
The Zomato stock had opened 3.77 percent higher at Rs 73.00 apiece on the BSE however as the trade progressed it erased all its gains and turned negative in the late morning deals and by early afternoon it hit an intraday low of Rs 65.50, down 6.89 percent on the bourse.
Mirroring similar movements on the National Stock Exchange (NSE), it hit a high of Rs 72.70 and a low of Rs 65.50 so far in the intraday session.
About Acquisition
On June 24, after market hours, Zomato had informed the bourses that its board has given its approval for acquisition of up to 33,018 equity shares of quick commerce company Blink Commerce (BCPL) (formerly known as Grofers India) for Rs 4,447.48 crore in an all-stock deal.
The acquisition is at a price of Rs 13,46,986.01 per share by issuance and allotment of up to 62,85,30,012 fully paid-up equity shares of the company having face value of Re 1 each at a price of Rs 70.76 per equity share, it said in the stock exchange filing.
Company also said that it has entered into an amendment to the definitive agreement dated June 28, 2021 with Grofers International Pte. Ltd, Hands on Trades Private Limited (HOTPL) and Albinder Singh Dhindsa, modifying certain rights of the company’s in relation to its existing investment in HOTPL (agreement).
Analyst Words
According to analysts at JM Financial, Quick Commerce space in the long run can offer a large complimentary profit pool for players like Zomato. The Blinkit acquisition is near term pain but long term gain for the online food aggregator.
“Despite management optimism, we conservatively build forecasts for Blinkit due to limited data and basis DCF, ascertain that the acquisition can add >8% value to our published TP of Rs 115 for Zomato,” they said, implying 63% upside on the stock.
Another brokerage Edelweiss has also maintained its positive stance on the core business, considering long growth runway and path to profitability. It has maintained a ‘Buy’ rating with a DCF-based target price of Rs 80.
“The Blinkit acquisition, to extract synergy on delivery cost, is crucial for Zomato. Zomato’s management has assigned an upper bound of $ 400 mn towards quick commerce investment for the next two years (CY22, CY23E).
Any deviation from this would be a key risk to our hypothesis. We expect Zomato will be able to generate 5-10% synergies on the delivery costs,” Edelweiss said in a note.
According to Punit Patni, Equity Research Analyst, Swastika Investmart Ltd, “The recently announced acquisition of Blinkit by Zomato Ltd. is expected to add to its woes of high operating losses. The Blinkit is synergistic to Zomato’s food delivery business and the management expects the business to grow significantly in the future.
Further, the current markets are not conducive for businesses that a growing without showing profits. Thus we believe that this company is suitable only for investors having a high-risk appetite and a long-term view.”
