Food delivery company Zomato, which went public in July 2021, has seen a massive decline on Dalal Street in the past few months. On Tuesday, Zomato’s shares ended at Rs 58.95, about 65 percent below its all-time high of Rs 169 touched on November 16, 2021. Investors have already lost almost two-thirds of their money in Zomato shares so far in 2022.
On June 24, Zomato's board approved the acquisition of Blinkit (Blink Commerce Pvt Ltd) for Rs 4,447 crore in an all-stock deal. The company lost about $1.1 billion of its market value two days after the announcement.
Analysts say Zomato's move to add another loss-making company to its portfolio has hurt investors’ sentiment. However, Zomato’s founder Deepinder Goyal told CNBC-TV18 that the company is racing towards profitability.
"Profitability has to happen and we also need to protect our long term view of how this business will look like 10-20 years from now. So Zomato is racing towards profitability and Blinkit is also becoming efficient every day. I can’t say when we will be profitable, but that’s the goal.”
Goyal also said that people have started to value the 10-minute delivery service. "Everybody wanted it free 4 years ago but now people are paying for the convenience that they get. On foods, mostly the discount era is behind us. The total net discounts amount to about 12 percent on the platform now and on Blinkit it is even less. Blinkit is actually profitable on a per order basis if you keep the fixed costs out. So over time with volumes we will also be able to cover the fixed costs.”
On the future of the Zomato-Blinkit merger, Goyal said that there are lot of synergies between the two companies but everything is theory at the end of the day for now and theory does not always translate to real life.
"We will see what actually happens. We will have to do a lot of tests to figure it out. But theory looks good. It can bring our last mile cost down considerably. So we will be able to pay our riders more per hours as well as bring our cost down and this is a very hard balance to create.”
Albinder Dhindsa, founder Blinkit told CNBC-TV18 that Blinkit is trying to optimise business to become profitable and efficient in every market. “We will continue to do what we are doing and keep making sure that it gets more and more efficient and we are able to invest into the future. So I don’t think there is any major change. Even the stores we shut down, they are just normal course of business for us to be able to optimise,” Dhindsa said.
Analysts remain worried
Though Zomato's sales have been increasing gradually, the food delivery giant is yet to turn profitable on account of high expenses.
“Zomato needs to focus on a single business model first then work on the multiple business models if it wants to become profitable,” technical analyst and market researcher Swapnil Kommawar told CNBCTCV18.com
“Zomato delivers the food on time, but there is no good returns to its holders, the structure at this moment is weak. Any upside is possible only if the price closes above Rs 76 and sustains at least for 2 days,” he added.
Last month, Kotak Institutional Equities Research downgraded the Zomato stock to 'add' from 'buy', and reduced its fair value estimate from Rs 83 to Rs 77. “We believe Blinkit will require investments beyond the $400 million envisaged by Zomato given rising competitive intensity,” the brokerage said.