Zomato share price rose 4.4% on Thursday to hit an intraday high of Rs 79.35 per share, as the scrip rebounded after having closed below the IPO price of Rs 76 apiece yesterday. The online food-delivery giant is said to be in talks to acquire 10-minute grocery delivery platform Blinkit (formerly known as Grofers), in a share swap deal. Blinkit acquisition could pave the way for Zomato to enter the e-grocery space, which is getting competitive by the day. However, analysts recommend investors stay away from Zomato stock, for now, citing various headwinds and predict more cash-burn.
No appetite for Zomato stock
According to Zomato’s current market capitalization, the company is valued at a little over $8.1 billion, which looks expensive, Amit Jain, Chief Strategist – Global Asset Class, Ashika Group told FinancialExpress.com. “As of now market cap of Zomato is close to $8 billion, which looks expensive as with Blinkit acquisition it will burn more cash and it will put further strain on the balance sheet of Zomato, hence medium-term investors may wait for more price and time correction,” he added.
While Zomato has a market capitalization of $8 billion, its online food-delivery rival Swiggy, recently raised funds at $10.7 billion post-money valuations. Highlighting this, Divam Sharma, Founder at Green Portfolio — a SEBI Registered Portfolio Management Service, advised avoiding the stock as of now. “For retail investors, we would suggest avoiding the stock for now and waiting for the growth to come and the synergies from investments and Blinkit acquisition to come,” he said while adding that he would like to see growth in the core business which is food delivery.
Will Blinkit acquisition help?
Blinkit has been struggling to raise funds and has even shut warehouses to sustain itself. Earlier in the week, Zomato had announced an investment of $150 million into Blinkit in form of debt. Zomato’s entry into the grocery delivery business seemed inevitable with its rival already having forayed into the same. “Zomato has a large food delivery network, which can be used for grocery delivery as well as both products are complementary to each other,” Amit Jain added. He, however, said that fundamentally, the move will remain weak till the time synergies of both businesses start adding to the bottom line of the merged entity. “This possible synergy of the product line may help the merged entity to create value in the long run for all stakeholders,” he said.
Other players in the space such as Zepto, Dunzo, and Instamar are already raising funds and readying a war chest, according to Divam Sharma. “This merger will ensure high growth for Zomato over the coming quarters. It will also make it easy for Zomato to increase its investments in Blinkit,” he added.
Reference Link:- https://www.financialexpress.com/market/zomato-stock-price-target-rating-avoid-blinkit-deal-swiggy-dunzo-zepto-grocery-delivery/2464058/