Zomato hits new record low, falls below issue price of Rs 76 intra-day

In the past three trading days, the stock of the food delivery company has declined 20 per cent after it reported disappointing set of numbers for December quarter

Shares of food delivery company Zomato declined 8 per cent and hit a new low of Rs 75.75 in the intra-day trade on the BSE on Tuesday, falling below the issue price of Rs 76. The shares, however, bounced back and closed 0.4 per cent higher at Rs 82.7 per share.

The market price of the company has plunged over 50 per cent from its record high level of Rs 169.10 hit on November 16, 2021. In the past three months, it has slipped 50 per cent as compared to a 7 per cent decline in the S&P BSE Sensex. Zomato had made stock market debut on July 23, 2021.

In Q3FY22, the company's revenue from operations grew by around 9 per cent quarter-on-quarter (QoQ), while the customer delivery charges de-grew by 22 per cent. This was driven by Rs 7.5 per order reduction in customer delivery charges in Q3FY22 as compared to Q2FY22, Zomato said.

Adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) loss reduced to Rs 270 crore in Q3FY22 as compared to Rs 310 crore in the previous quarter (Q2FY22) driven by rationalizing spends across various businesses and functions.

Food delivery gross order value (GOV) volumes grew a modest around 2 per cent/5 per cent QoQ despite substantial reduction in customer delivery charges and expansion in 180 new cities. This was due to post-Covid reopening and retrenched marketing spends to acquire new customers.

The company believes that the weak QoQ growth in GOV was primarily due to reduction in customer delivery charges, in addition to a soft impact of post-Covid reopening (including some shift from delivery to dining out). Average order value (AOV; which includes customer delivery charges) shrunk by around 3 per cent QoQ, mostly on account of reduction in customer delivery charges.

"Declining contribution with weak growth in GOV, suggests that the growth is getting softer while cost pressures are not moderating. This along with further allocation of Rs 550 crore on minority investments is straining cash-flows and thus resulting in cut in our discounted cash flow (DCF) value," analysts at Dolat Capital said with a "sell" rating on the stock and a target price of Rs 75 per share.

Those at JM Financial Institutional Securities added: While reopen impact may continue in October-December quarter (Q4), we believe the company's investments and the forthcoming IPL tournament could help it regain strong growth momentum.

While Q3 results were a tad disappointing, the brokerage firm expects the company to return to strong growth trajectory once reopen impact subsides. "We remain bullish on the company’s long term growth prospects as it is well-positioned to benefit from robust industry tailwinds such as improving tech penetration and rising income share of digitally native millennials / GenZ," It said.

According to analysts at Edelweiss Securities, Zomato's growth trajectory and profitability appears weaker than anticipated. "We note that valuation of Zomato's global peers have also declined sharply. We will watch out growth trends and execution versus Swiggy," the brokerage firm said.