Shares of food aggregator Zomato tumbled sharply on Monday after the company’s Board of Directors approved a proposal to acquire a cash-strapped quick commerce company Blinkit for Rs 4,447 crore.
The proposed acquisition will be an all-stock deal.
Last year, Zomato extended $50 million loans to Grofers India Private Limited, which has now been renamed as Blink Commerce.
At 12.14 p.m, the shares of Zomato traded at Rs 65.90, down 6.5 per cent from the previous session.
So far in 2022, it had fallen 53 per cent on a cumulative basis.
Even though the company reported healthy gains on its listings on the stock exchanges in July last year, it could not capitalize on it further.
“The recently announced acquisition of Blinkit by Zomato Ltd. 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.