Zomato stock price today: Shares of the food delivery giant, Zomato, fell more than 8.2 percent for the second day in Tuesday’s trading, after the food delivery giant agreed to acquire instant supermarket startup Blinkit for Rs 4,447 crore in an all-stock deal. .
The deal comes after it bought a more than 9 percent stake in SoftBank Group-backed Blinkit in August for nearly Rs 518 crore, promising to invest a whopping $400 million in India’s fast trading market over the next two years. .
As part of the deal, Zomato will issue up to 629 million shares, representing a 6.88 percent equity stake on a fully diluted basis, at an allotment price of Rs 70.76 per share.
Blinkit operates in a highly competitive industry, which would prolong its path to profit. “Swiggy’s success in the supermarket has given it the upper hand. Therefore, in order to achieve synergy on delivery costs, the acquisition of Blinkit is crucial for Zomato. Zomato’s management has allocated a cap of $400 million in high-speed trading investments over the next two years (CY22, CY23E). Any deviation from this would be a significant risk to our hypothesis,” said brokerage Edelweiss.
“We believe Blinkit will require investments beyond the $400 million envisioned by Zomato given the increasing competitive intensity,” Kotak Institutional Equities analysts wrote in a note.
The company’s shares have fallen as much as 14 percent since the announcement of the offer, losing nearly rupees 76.78 billion in market capitalization. They are also down nearly 48 percent since they went public last July.
Issuance of new shares by Zomato to Blinkit, including employee stock option pool, would equate to dilution of approximately 7.25 percent of total shares outstanding, according to a Morgan Stanley client note.
Analysts believe a deal with Blinkit will slow Zomato’s path to profitability, causing stock damage. “Given the intense competitive intensity in the fast-paced trading space, we believe the path to profitability for the Zomato group after the acquisition could be extended by at least a year from FY25 to FY26,” said Swapnil Potdukhe, an analyst at JM Financial.
Shareholders of Blinkit will get about 7 percent in Zomato at Rs 0.76 per share. The transaction involves a 7.4 percent dilution of Zomato’s existing share capital and will be valued at an enterprise value to revenue of 8.1 times in May 2022, along with the valuation.
Zomato shares, listed on July 23, 2021, are down 61 percent from their all-time high of Rs 169 on November 16. The stock was up a whopping 122 percent from the issue price of Rs 76.
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