Zomato stock slips 14% in two sessions post Blinkit acquisition, what should investors do?

Shares of online food delivery firm Zomato have plunged 14 per cent in the last two sessions after the firm said it would buy local grocery-delivery startup Blinkit for Rs 4,447 crore ($568.16 million) in an all-stock deal. Shares of Zomato hit an intraday low of Rs 60.45, down 8.2 per cent today against the previous close of Rs 65.85 on BSE. With today's slide, the stock has lost Rs 9.9 or 14.07 per cent in the last two sessions.

The stock has fallen from Friday's close of Rs 70.35 to intraday low of Rs 60.45 today, translating into a loss of 14.07 per cent in two sessions. Zomato stock is trading lower than 5-day, 20-day, 50-day, 100-day and 200-day moving averages.

The stock has fallen 55.47 per cent in 2022 and lost 1.37 per cent in a month. Shares of Zomato hit a 52-week high of Rs 169.10 on November 16, 2021 and a 52-week low of Rs 50.35 on May 11, 2022.

Total 61.79 lakh shares of the firm changed hands amounting to a turnover of Rs 38.03 crore on BSE. The market cap of the firm fell to Rs 48,068 crore on BSE. Zomato did not disclose details of the size of its latest stake in Blinkit.

Also read: Zomato sheds $1 bln in valuation over two days after Blinkit deal

In August last year, Zomato bought over 9 per cent stake in Blinkit for nearly Rs 518 crore ($66.16 million). Earlier this year, Zomato said it would invest as much as $400 million in the Indian quick commerce market over the next two years. Blinkit operates in over 20 Indian cities, delivering products ranging from milk, eggs, fruits, and vegetables to electronics. As of January, the startup had an annual run rate of gross merchandise value of about $450 million, according to Zomato.

Here's a look at what brokerages and analysts said about the prospects of the stock post the deal.

UBS assigned a buy call to the stock with a target price of Rs 95 on June 27. Zomato reiterated earlier guided upper limit of US$400 million over the next two years. Integration will drive synergies, it added.

Bank of America Securities has assigned a neutral call with a target price of Rs 82. It said the deal well flagged in advance. The competition impact will be felt over time. It also faces risks in form of breakeven delay. Price of $578 m lower than the price indicated in media of $700m & last round valuation of $1 billion.

CLSA assigned a buy call to the Zomato stock with a target price of Rs 90 on June 27. It said Zomato to acquire Blinkit in a stock deal valuing Blinkit at $626 million.

"The management continues to hold its upper bound capital allocation plan of US$400m investment in quick commerce for 2022 and 2023," CLSA said.

Manoj Dalmia, founder and director, Proficient Equities

"Zomato share prices are trading range-bound in the last one-two months. The stock is expected to take support near Rs 50 levels where investors can buy with very small stop loss. From there, we might see some reversals taking places."

Ravi Singh, vice President and head of Research, Share India

"The deal between Zomato and Blinkit has no immediate impact on the Zomato stock as the Blinkit business model is in it's early stage and the potential is yet to be proven. The Zomato stock is trading between the tight range of Rs 60 - Rs 80 levels since listing. Investors are advised to refrain themselves from taking fresh buy positions at current levels. The stock may touch levels of 55 in current scenario and any recent reversal in the trend is unlikely."

AR Ramachandran, Co-founder & Trainer, Tips2Trades

"Zomato stock price is down considerably as investors send a strong warning to the promoters of acquiring companies which could take a long time to break even thereby adding more pressure to their existing business margins. Technically, till the stock does not close above  Rs 80 on the daily chart, trend is bearish. Rs 52- Rs 56 remains a strong support zone."