Blinkit Acquisition Weighs On Zomato Shares, M-Cap Declines Over INR 10K Cr In 3 Days

Following the announcement of its acquisition of quick commerce startup Blinkit, Zomato shares continued to decline for the third straight session on Wednesday (June 29), falling over 5% to INR 57.20 on the NSE. 

The food delivery startup has already lost over INR 10,250 Cr of its market capitalisation in the three trading sessions since the announcement. The startup’s current market cap stands at INR 45,116 Cr, as per the BSE. 

On Friday (June 24), Zomato announced, after market hours, that its board has approved the acquisition of Blinkit for INR 4,447 Cr ($568 Mn) in an all-stock deal.

The startup’s shares have been declining since Monday, falling nearly 19% in three sessions.

Explaining Blinkit’s relevance to Zomato’s business, founder and CEO Deepinder Goyal stated that Blinkit, just like food delivery, is also a hyperlocal business and caters to the need for quick delivery of products for customers.

Though several equity research firms and their analysts said that the deal would add to Zomato’s business in the longer run, the decline in share prices indicates that investors are not so confident about the acquisition adding value to the business.

As per analysts, Zomato adding another loss-making company to its portfolio has hurt investors’ sentiment. The possibility of a higher cash burn has also made the investors cautious.

Meanwhile, Kotak Institutional Equities Research has already downgraded the stock to ‘add’ from ‘buy’ and cut the fair value estimate to INR 77 from INR 83. “We believe Blinkit will require investments beyond the $400 Mn envisaged by Zomato given rising competitive intensity,” the research firm added.

Zomato shares have fallen about 60% so far in 2022.