Bangalore: K Shares zomato Losses extended for the second straight day, falling as much as 8.2% on Tuesday, as investors questioned the appropriateness of the company’s deal to buy local grocery delivery startup Blinkit.
The Ant Group-backed food delivery firm on Friday said it will acquire Blinkit for Rs 4,447 crore ($568.16 million) in stock, as it tries to gain a foothold in the increasingly competitive instant delivery market.
The deal comes after it bought a more than 9% stake in SoftBank Group-backed Blinkit in August for about Rs 518 crore, with a promise to invest $400 million in the accelerated-commerce market over the next two years.
“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 up to 14% since the announcement of the offering, leading to a fall in market capitalization of around Rs 7,678 crore. They’re down about 48% since they went public last July.
According to a Morgan Stanley client note, the issue of fresh shares by Zomato to Blinkit, which also includes the employee stock option pool, will result in dilution of approximately 7.25% of the total outstanding shares on an acquisition basis.
Quick-commerce sector growing fast, rivals Swiggy, Reliance Industries-backed Dunzo, Tata-backed BigBasket And zepto Making a big investment.
According to research firm RedSeer, the industry was worth $300 million last year and is expected to grow 10-15 times to $5 billion by 2025.
“Given the e-grocery economics, price competition, the relatively low margin nature of the category, high number of products per order, and a lot of competition are required,” Kotak analysts said.
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