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Zomato shares are down 65% from 52-week high, time to buy?

Zomato shares are down 65% from 52-week high, time to buy?

Zomato share price today: Zomato shares are trading at Rs 58, down 65.70 per cent from the yearly high of Rs 169.10 hit on November 16, 2021 on BSE. On July 27, 2022, the stock touched a 52-week low of Rs 40.55.

The sentiment around the Zomato stock was weak today with market cap falling to Rs 49,796 crore. Zomato shares were trading lower than 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The sentiment around the Zomato stock was weak today with market cap falling to Rs 49,796 crore. Zomato shares were trading lower than 5-day, 20-day, 50-day, 100-day and 200-day moving averages.

Shares of food delivery firm Zomato have tumbled 65 per cent from their 52-week highs hit last year. Zomato stock is trading at Rs 58 today, down 65.70 per cent from the yearly high of Rs 169.10 hit on November 16, 2021 on BSE. On July 27, 2022, the stock touched a 52-week low of Rs 40.55. High volatility in market due to the Covid-19 lockdowns and fears of recession have dampened sentiment around the stock. The stock has declined 58 per cent in a year and lost 57.66 per cent in 2022. The acquisition of local grocery-delivery startup Blinkit for Rs 4,447 crore ($568.16 million) in June-end this year also failed to enthuse investors.

The stock plunged 14 per cent in the next two sessions with analysts saying that Blinkit's business model was in its early stage and its potential was yet to be proven.

On June 28 this year, the Zomato stock hit an intraday low of Rs 60.45, falling 8.2 per cent against the previous close of Rs 65.85 on BSE. The stock had lost Rs 9.9 or 14.07 per cent in the previous two sessions that day.

Q1 earnings

In Q1 of this fiscal, the quarterly loss of Zomato narrowed led by an increase in orders for restaurant meals on its platform.
Zomato reported a net loss of Rs 186 crore for the quarter ended June 2022 against a net loss of Rs 356 crore year ago.
Revenue from operations climbed 67.44 percent at Rs 1,413.9 crore in Q1 against Rs 844.4 crore logged in the year-ago quarter.

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The company's adjusted revenue rose 18 per cent quarter-over-quarter (QoQ) and 56 per cent year-over-year (YoY) to Rs 1,810 crore in Q1FY23. Adjusted EBITDA loss reduced to Rs 150 crore (-8 per cent of adjusted revenue) in the quarter under review as compared to Rs 220 crore (-15 per cent of adjusted revenue) sequentially.

Shareholding pattern

In Q1 of the current fiscal, 17,61,015 public shareholders held a 97.51 per cent stake or 833.62 crore shares in the firm. Promoters did not hold any stake in the last quarter. 17.40 lakh public shareholders held 51.34 crore shares of the firm, amounting to a stake of 6.01 per cent with an individual share capital of up to Rs 2 lakh.

106 public shareholders held 54.02 crore shares of the firm, amounting to a stake of 6.32 per cent with an individual share capital of over Rs 2 lakh. 20 mutual funds owned 37.17 crore shares or 4.35 per cent stake in the firm at the end of June quarter. 566 foreign portfolio investors (FPIs) owned 17.26 per cent stake or 147.52 crore shares in the food delivery firm at the end of the last quarter.

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The sentiment around the Zomato stock was weak today with market cap falling to Rs 49,796 crore. Stock of Zomato is trading lower than 5 day, 20 day, 50 day, 100 day and 200 day moving averages. A total of 7.08 lakh shares of the firm changed hands, amounting to a turnover of Rs 4.10 crore on BSE.

Here's a look what analysts said about the outlook of the stock amid the ongoing uncertainty in global  and domestic markets.

Abhijeet  from Tips2trade said, "Considerable froth in terms of valuation post IPO, bearish global market sentiment coupled with a few aggressive acquisitions this year has meant a wildly volatile ride for Zomato investors. Rs 51.75 remains a strong support level in the near term. Only a daily close above Rs 65 can lead to a decent recovery up to Rs 78 in the near term. Long-term investors should now add more only if stock stabilises above 65 levels."

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Santosh Meena, head of research, Swastika Investmart said the company will take significant time to show profitability.

"Zomato has witnessed a significant underperformance since its listing. The company has been shunned by the investors post the beginning of the rate hike cycle by the central banks globally and the huge sell-off in the tech sector. Further, the company will take significant time to show profitability and the current market sentiments are punishing startups that are growing without showing profits. Therefore, we are averse to Zomato despite its strong position in the online food service platforms and the current correction. However, we may see some recovery or bargain buying at lower levels. Technically, the stock found a base at Rs 40 mark and then witnessed a breakout of downsloping channel formation which is giving some hope to the bulls. On the upside, we can expect a move towards the Rs 75- Rs 85 but this is a critical supply zone. On the downside, Rs 50 will act as an immediate and strong support level," said Meena.

Manoj Dalmia, founder and director, Proficient  Equities is of the view that stock is in a consolidation phase.

"The stock is trading in a volatile range and has been sideways for the last few months. Investors can expect some change in momentum after this. Heavy buying is not recommended at current levels. Any closing above Rs 79.86 can trigger some upmove. We can have a consolidation phase in this stock with a mid-term view," said Dalmia.

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Ravi Singhal, CEO at GCL is bearish on the stock with a target price of Rs 37.

"As we can see, the market has fallen from its recent high. The stock has been steadily declining due to recession fears and the Blinkit acquisition. Technically, it appears very weak. Target price from our end is Rs 37."

Ravi Singh, vice President and head of Research, Share India suggests sell on rise strategy for investors.

"In the inflationary environment, it is not easy to handle the unit economics in the food delivery business. On the other hand, losses are much higher in new business segments like Quick Commerce. Many concerns still remain for Zomato. There may be challenges on the regulatory front also. The stock price of Zomato has limited upside move from current levels. It may go up to Rs 62 levels and investors may take this opportunity to exit their holdings. Zomato stock has a support near Rs 56 levels below which the counter may fall towards Rs 52 levels," added Singh.

Jitendra Upadhyay, senior equity research analyst, Bonanza Wealth Management says investors should slowly reduce exposure to the stock.

"I suggest investors to avoid  taking  new  exposure  or  slowly  reduce existing exposure  to Zomato. The stock  has  corrected  more  than  65%  of  their  total  market  value  on  an  average  from  52- week high. Zomato is trading at expensive  valuation  based  on  their  future  business  moat  and  making  EBITDA  level  losses. As per  the management, it expects to achieve adjusted EBIDTA breakeven level for its overall business by Q2FY2, " said Upadhyay.

In July-end this year, global brokerage firm Jefferies said it saw over 130 per cent upside in Zomato shares from the current market price, citing hopes of strong growth momentum in average monthly transacting users (MTUs) and gross order value (GOV) for the food delivery firm over the medium to long-term.

The stock traded near Rs 40 level that time.

While commenting on Zomato, Jefferies said that worries of Fed tightening and investor focus on cash flow have been weighing on the internet names, including food tech, globally.
 
“From an exuberance at the time of listing last year, Zomato is now unloved, having underperformed peers year-to-date. Blinkit acquisition elongates the path to profitability and despite management guidance on break-even in food delivery, investors are not giving many benefits of doubt. We think this makes for a great case for long-term investors to Buy,” Jefferies said.
 
It set a target price of Rs 100 for the food delivery firm. However, in a bullish scenario, Jefferies said that Zomato may hit Rs 160 over the next 12 months.
 
Zomato made a strong market debut on July 23, 2021 as the stock opened at Rs 116 on NSE, a 52.63 per cent premium to its IPO issue price of Rs 76. The listing price on the BSE was at Rs 115, up 51.32 per cent.

Published on: Sep 28, 2022, 11:35 AM IST
Posted by: Aseem Thapliyal, Sep 28, 2022, 11:14 AM IST