SUMMARY
Several analysts predicted that the Blinkit acquisition would continue to weigh on Zomato shares in the near term
In its previous session on June 27, the food delivery startup’s shares had tanked 6.6% to INR 65.85
On Friday (June 24), Zomato had announced the acquisition of Blinkit in an all-stock deal for INR 4,447 Cr
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Zomato shares continued their falling streak for the second straight session on Tuesday (June 28), declining 7.3% further to INR 61 on NSE by 1:40 IST following the Blinkit deal.
In its previous session on June 27, the food delivery startup’s shares had tanked 6.6% to INR 65.85. Zomato had announced its acquisition of quick commerce startup Blinkit on Friday after market hours.
Several analysts predicted that the Blinkit acquisition would continue to weigh on Zomato shares in the near term. Zomato being a loss-making company itself and adding another loss-making company to its portfolio has largely hurt the shares as many inventors turn cautious. Moreover, the possibility of higher cash burn adds to the negative sentiment around Zomato stocks.
On Friday (June 24), Zomato had announced the acquisition of Blinkit in an all-stock deal for INR 4,447 Cr. With the deal expected to close in early August this year, Zomato CEO and founder Deepinder Goyal said that the business of Blinkit is synergistic with its core food business.
“Quick commerce will help us increase the customer wallet share spent on our platform and also drive higher frequency and engagement from our customers,” he had added.
Though research firms like JM Financial and Edelweiss maintained their positive stance on Zomato’s core business and the long-term prospects of the acquisition, the analysts at the firms noted a few short-term risks.
JM Financial analysts said that post the deal, the path to profitability for Zomato can be extended by at least a year, from FY25 to FY26.
“While management’s ‘educated guess’ is that Blinkit will break even at adjusted EBITDA level over the next three years, we are sceptical,” said Edelweiss analysts.
Edelweiss has noted earlier that while the annualised cash burn for Blinkit stands at $165 Mn, in the worst-case scenario, if Blinkit’s perpetual cash burn is $150 Mn, it could drag down Zomato’s valuation by 14%.
However, it had also said that Zomato has enough muscle with a cash balance of $1.6 Bn to withstand such a situation.
After starting to show an upward rise in the last few weeks, Zomato shares are currently back to their last month’s level.
Shares have fallen about 57% so far this year.
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