Zomato shares turn volatile, end flat after co-founder Gaurav Gupta quits

The stock nose-dived into red, down almost 11 per cent from the intra-day high post the news break, and thereafter turned volatile on alternate bouts of buying and selling.

Shares of Zomato were in limelight on Tuesday, after one of the company’s top executive and co-founder Gaurav Gupta quit the company. The CEO Deepinder Goyal confirmed the news in a blog post. READ MORE

The stock had started the day on a positive note, and scaled a high of Rs 152.75. However, post the news break the stock nose-dived into red to a low of Rs 136.20, down almost 10 per cent from the day’s high.

It, however, recouped its losses and bounced back into the positive zone. Thereafter, the stock is exhibiting high amount of volatility swinging between the zones. The stock eventually ended almost unchanged at Rs 143, on the back of heavy volumes at teh counter (92.20 lakh shares) on the BSE.

Analysts say the stock's valuation are a bigger concern right now than Gupta's exit from the company. G Chokkalingam, founder and managing director at Equinomics Reseach, for instance, says that investors should not be worried in changes in top management, but instead focus on the company’s valuations.

“For me the bigger concern with Zomato is that the valuations seem fairly stretched at this point of time”, he said.

Off late the stock has been trading at record high levels, having doubled from its issue price of Rs 76 share in July 2021. Zomato has already surpassed personal products companies like Godrej Consumer Products and Dabur India in the overall market capitalisation (market cap) ranking of the BSE listed companies. Meanwhile, Zomato recently decided to shut down its grocery delivery service that it started barely two months ago, due to gaps in order fulfilment and the traction. READ ABOUT IT HERE 

In its first-ever quarterly results as a listed entity, food service provider Zomato put up a mixed show. The company's revenue from operations in the June quarter (Q1FY22) rose 217 per cent year-on-year (YoY) to Rs 844 crore from Rs 266 crore a year ago, on the back of Zomato's core food delivery business, which continued to grow despite the severe Covid wave that started in April.

That said, the company's loss swelled by over three times to Rs 356 crore in Q1. Further, the company's EBITDA (earnings before interest, tax, depreciation and amortisation) loss widened by 42 per cent to Rs 170 crore on a quarterly basis.

"Following a strong Q1, we raise FY22-24 revenue estimates by around 10-20 per cent, primarily based on higher GOV (which in turn are based on higher MTUs). We also raise our EBITDA loss estimates but continue to see break-even by FY25-26. We have also made changes in our model structure to separately account for ESOP charge from here-on and have also raised this. However, this has no cash flow impact and we already built-in 8 per cent dilution. We retain Buy with slightly higher price target at Rs 175," wrote Vivek Maheshwari, Jithin John and Kunal Shah of Jefferies in a recent note.