Zomato shares sink 6% after rival food delivery aggregator Swiggy markdown

Shares of Zomato fell over 6 per cent on Tuesday after Invesco, a US-based fund manager, nearly halved the valuation of its rival food delivery aggregator Swiggy.

Zomato ended the session at Rs 60.94 (BSE), valuing the food delivery company at Rs 52,281 crore.

The slashing of valuations of Swiggy comes at a time when many investors are re-evaluating the valuations of technology companies across the globe.

Currently, Zomato is trading at 20 per cent below its issue price of Rs 76. Market experts said that there could be more pain ahead for the stock.

“For many new-age companies, the marginal cost is zero. And, the contribution of incremental revenue to profit is huge. It is not the case with Zomato as the business is labour intensive,” said G. Chokkalingam, founder of Equinomics.

Both Zomato and Swiggy are facing fresh threats from the Indian government-made Open Network for Digital Commerce (ONDC), which lets restaurants sell food directly to consumers without relying on a third-party platform.

Analysts said it is still early days for ONDC to make a meaningful impact on food delivery majors.

Others termed Tuesday’s decline in shares of Zomato as short-term turbulence.

They said Zomato’s prospects are bright as the food delivery industry in India is all set to grow rapidly in the medium term. 

“Zomato is a dominant player in the industry, and we forecast the company to report 29 per cent revenue CAGR (compound annual growth rate) over FY23-25. We expect strong growth to be complemented by the company turning profitable over FY25, despite the high competitive intensity,” said a recent note by Motilal Oswal.