India's Zomato sheds nearly $1 billion in valuation over two days after Blinkit deal
Reuters
Published Jun 28, 2022 04:05AM ET
BENGALURU (Reuters) - Shares of India's Zomato Ltd fell as much as 8.2% on Tuesday, extending losses for a second straight day as investors questioned the rationale of the company's deal to buy local grocery delivery startup Blinkit.
The Ant Group-backed food delivery firm said on Friday it would acquire Blinkit for 44.47 billion rupees ($568.16 million) in stock, as it tries to gain a foothold in the fiercely competitive quick delivery market.
The deal comes after it bought a more than 9% stake in SoftBank Group-backed Blinkit for nearly 5.18 billion rupees in August, with a promise to invest as much as $400 million in the Indian quick-commerce market over the next two years.
"We believe Blinkit will require investments beyond the $400 million envisaged by Zomato, given rising competitive intensity," analysts at Kotak Institutional Equities wrote in a note.
The company's shares fell as much as 14% since the announcement of the offer, shedding nearly 76.78 billion rupees in market capitalization. They are also down nearly 48% since going public last July.
Issuance of new shares by Zomato to Blinkit, including employee stock option pool, would amount to dilution of about 7.25% of total outstanding shares post acquisition basis, according to a Morgan Stanley (NYSE:MS) client note.
The quick-commerce sector is growing at a rapid clip, with rivals Swiggy, Reliance Industries-backed Dunzo, Tata-backed BigBasket and Zepto making big investments.
The industry was worth $300 million last year and is expected to grow 10-15 times to $5 billion by 2025, according to research firm RedSeer.
"E-grocery economics have been tough to crack given price competition, relatively lower margin nature of the category, high number of products per order which need efficient fulfilment, and very high competition," Kotak analysts said.
Get The News You Want
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.