Zomato share price today: Shares of food delivery giant, Zomato, fell over 8.2 per cent for the second day of trading on Tuesday after the food delivery giant agreed to acquire instant grocery startup Blinkit for Rs 4,447 crore in an all-stock deal.
The deal comes after it bought over 9 per cent stake in SoftBank Group-backed Blinkit in August for about Rs 518 crore, with a promise to invest $400 million in the Indian quick-commerce market over the next two years.
As part of the deal, Zomato will issue 62.9 million shares at an allocation price of Rs 70.76 per share, which is an equity stake of 6.88 per cent, on a fully diluted basis.
Blinkit operates in a highly competitive field, which will pave the way for profits. “Swiggy’s success in grocery has given it an upper hand. Hence, the Blinkit acquisition is crucial for Zomato to achieve synergies on delivery cost. Zomato’s management has set an upper limit of $400 million for accelerated commercial investment for the next two years (CY22, CY23E). Any deviation from this would pose a significant risk to our hypothesis,” said brokerage Edelweiss.
“We believe that Blinkit will require an investment of over $400 million as envisaged by Zomato, given the increasing competitive intensity,” analysts at Kotak Institutional Equities wrote in a note.
The company’s shares have fallen as much as 14 per cent since the announcement of the offer, resulting in a fall in market capitalization of around Rs 76.78 billion. They’re also down about 48 percent since they went public last July.
According to a Morgan Stanley client note, the issue of new shares by Zomato to Blinkit, which also includes the employee stock option pool, will result in dilution of approximately 7.25 per cent of the total outstanding shares on an acquisition basis.
Analysts believe that the deal with Blinkit will delay Zomato’s path to profitability, which will hurt the stock. Swapnil Potdukhe, Analyst, JM Financial, said, “Given the intense competitive intensity in the Quick Commerce space, we believe that the profit margins post the Zomato Group acquisition will remain in place for at least one year from FY25 to FY26. can be extended.”
Blinkit shareholders will get around 7 per cent discount in Zomato at Rs 0.76 per share. The transaction implies dilution of Zomato’s existing share capital by 7.4 per cent and is valued at an enterprise value of 8.1 times as of May 2022, its valuation.
Shares of Zomato, which were listed on July 23, 2021, are down 61 per cent from their all-time high of Rs 169 on November 16. The stock had risen up to 122 per cent from its issue price of Rs 76.
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