Zomato’s 2-Week Bull Run Ends As Stock Tanks 7% Intraday

Shares of foodtech major Zomato declined 7% on the BSE to INR 60.35 during the intraday trading on Tuesday (May 9), reversing the upward trend of the last two weeks.

The fall has come amid the recent cut in its competitor Swiggy’s valuation and reports of Zomato piloting B2B logistics services, despite weak fundamentals in its existing business verticals.

At a time when tech businesses across the world are witnessing valuation erosion, Investment firm Invesco slashed Swiggy’s valuation to $5.5 Bn, which stood at $10.7 Bn in January last year. 

In India, Zomato and Swiggy currently dominate the food delivery market. Some market experts were already concerned about Zomato’s performance in the March quarter of FY23 due to the inflationary pressure.

Meanwhile, after several failed pilots in its history, Zomato has reportedly started approaching smaller food and grocery aggregators, pharmacies, and consumer brands to start the pilots of B2B logistics services.

The competition has also started getting tougher for Zomato, with the government’s Open Network For Digital Commerce (ONDC) coming into the picture. 

Inc42 recently reported ONDC’s effort to provide food delivery at a significantly lower price compared to Swiggy and Zomato can pose a major challenge for the latter.

The National Restaurant Association of India (NRAI) is also acting as an enabler for restaurants to join the ONDC, which can end the dominance of Swiggy and Zomato in the food delivery space.

Despite having an overall positive outlook on Zomato’s business, Motilal Oswal in its recent initiation note on the company said that ONDC panning out could prove to be a major risk to Zomato’s revenue and profitability aspirations.

“Zomato being a major player enjoys the privileges of the same, which ONDC could disrupt. We also see a possibility of industry-wide normalisation of commissions and delivery charges due to comparability provided by ONDC,” the brokerage said. “Further, it could be a major threat to revenues as ONDC could change the competitive landscape by providing equal opportunities for smaller players.”

In a research report last month, JM Financial noted that besides the macroeconomic uncertainties like inflationary pressure, Zomato’s aggressive focus on improving its overall profitability and growing share of dining out can impact the growth of its food delivery vertical.

JM Financial has projected a muted Q4 for Zomato.

Despite the increasing market risks and cautionary statements by analysts, Zomato’s shares rallied more than 20% over the last month.

Zomato ended Tuesday’s trading session 6% lower on the BSE to settle at INR 60.94.