Zomato Shares Fall Over 6 Percent After It Announces Blinkit Acquisition

JM Financial says the path to profitability for Zomato group post the acquisition of Blinkit can get extended by at least a year.

By Agencies | Updated: 27 June 2022 18:25 IST

Zomato Shares Fall Over 6 Percent After It Announces Blinkit Acquisition

The stock Zomato declined 6.40 percent to settle at Rs. 65.85 on the BSE

Highlights

Blink Commerce runs the online quick commerce service
The current market conditions are not conducive for businesses
The transaction will be carried out through issuance and allotment

Shares of Zomato fell by over 6 percent on Monday after announcement that the online food delivery platform will acquire Blink Commerce (formerly known as Grofers) for Rs. 4,447.48 crore.

The stock declined 6.40 percent to settle at Rs. 65.85 on the BSE. During the day, it fell 7.53 percent to Rs. 65.05. At the NSE, it went lower by 6.59 percent to settle at Rs. 65.85 a piece. Zomato on Friday said it will acquire Blink Commerce for Rs. 4,447.48 crore in a share swap deal as part of its strategy of investing in quick commerce business.

The company's board at a meeting held on Friday approved the acquisition of up to 33,018 equity shares of Blink Commerce from its shareholders for a total purchase consideration of Rs. 4,447.48 crore at a price of Rs. 13.45 lakh per equity share, Zomato said in a regulatory filing.

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Blink Commerce runs the online quick commerce service under the Blinkit brand. It was formerly known as Grofers. The transaction will be carried out through issuance and allotment of up to 62.85 crore fully paid-up equity shares of Zomato having face value of Re. 1 each at a price of Rs. 70.76 per equity share on a preferential basis, it added.

The company already holds 1 equity share and 3,248 preference shares presently in BCPL, the filing said.

"This high cash burning sector houses fierce competition from the likes of Zepto, Dunzo, Swiggy Instamart, BigBasket, etc and it will be interesting to see how this expensive investment by Zomato pans out in the future," said Shivam Bajaj, Founder and CEO at Avener Capital, on Zomato - Blinkit deal.

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Even though the company reported healthy gains on its listings on the stock exchanges in July last year, it could not capitalise on it further.

"The recently announced acquisition of Blinkit by Zomato is expected to add to its woes of high operating losses. The Blinkit is synergistic to Zomato's food delivery business and the management expects the business to grow significantly in the future. The quick commerce market, however, has become incredibly competitive, and it will take a very long time to figure out the unit economics and turn profitable," said Punit Patni, Equity Research Analyst, Swastika Investmart on the decline in Zomato shares.

Further, the current market conditions are not conducive for businesses that are growing without showing profits, said Patni, adding that the company is suitable only for investors having a high-risk appetite and a long-term view. The company's current market capitalisation is worth Rs. 52,242 crore, National Stock Exchange data showed.

Given the intense competitive intensity in the quick commerce space, brokerage house JM Financial believes that the path to profitability for Zomato group post the acquisition of Blinkit can get extended by at least a year to FY26 from FY25.

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