Zomato share price halts 8-day winning streak, dips over 5%; here’s why
Online food delivery giant, Zomato’s share price halted its 8-consecutive days winning streak and plunged by more than 5% on Wednesday after the company liquidated its subsidiary in Australia. Investors broadly cashed in gains as the stock has been on a winning streak from June 2nd till 13th.
On BSE, Zomato’s share price closed at ₹74.07 apiece down by 5.38%. The stock was near its intraday low of ₹73.25 apiece.
From June 2nd to 13th, Zomato’s stock rallied by more than 15% on BSE before correcting on January 14th. The shares even shrugged off the #BoycottZomato trend after its controversial ad that featured on World Environment Day.
On Tuesday, in its regulatory filing, Zomato said, “We wish to submit that Zomato Australia Pty Limited, step down subsidiary of the Company, located in Australia has been deregistered effective from June 11, 2023.”
This week, on June 12, in their research note, Kotak Institutional Equities recommended buying in Zomato shares as the e-commerce player focuses on better monetization across businesses.
According to Kotak’s report, Zomato and Swiggy have introduced differential pricing to their food delivery subscription packages, in a bid to improve contribution margin (CM) from such customers. The differential pricing seems targeted and aims to better monetize higher-frequency customers while incentivizing low-frequency customers to join the subscription program.
Further, the brokerage took note that after peaking in CY2022, competitive intensity in q-commerce seems to be receding, with BigBasket veering toward a 45-60 minute delivery model and Jiomart scaling down its services offered via Dunzo. Blinkit is thus competing with Instamart and Zepto; however, there seems to be a concerted effort from all three companies to charge delivery fees and reduce discounts.
Kotak’s note said, “This has driven a sharp reduction in Blinkit’s CM loss, with CM break-even likely in FY2024. We believe Zomato’s investments in Blinkit will amount to Rs80 bn by FY2025 (cash + equity dilution) and we ascribe a valuation of 1X book value to Blinkit.”
Hence, the brokerage believes that Blinkit is fast scaling down losses, and the weakening competitive intensity should aid CM’s breakeven in FY2024 for the business.
Subsequently, on valuation, Kotak’s note said, “We retain BUY on Zomato with a revised FV of Rs95 (Rs82 earlier). We have increased our FY2025-26 EBITDA estimates by 14-65% as we model higher near-term CM. This, coupled with the Rs80 billion valuation of Blinkit, drives the FV increase. Zomato has made significant progress on CM improvement in FY2023, and levers such as take-rate improvement and operating leverage can continue playing out in FY2024-25.”
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Updated: 14 Jun 2023, 08:48 PM IST
