May23 , 2022

Zomato share price: Burning cash? Zomato wipes off Rs 88,000 cr m-cap in 6 months



New Delhi: Zomato has not only been burning cash for its growth but has actually burnt investors’ money in the last six months. The shareholders of the food delivery platform have turned poorer by Rs 87,800 crore following a 65 per cent crash in the stock from the all-time peak.

Zomato has been among the worst hit from the ongoing rout in tech-driven platforms. The stock hit a new 52-week low of Rs 57.65 on Friday, registering a sharp fall of another 6 per cent during early market hours.

On Friday, the market capitalization of Zomato dwindled down to Rs 45,381.69 crore, its lowest since listing. This is Rs 87,732.69 crore lesser than its peak cap of Rs 1,33,144.38 crore in November when the stock had scaled an all-time high of Rs 169.10.

Compared to its issue price of Rs 76, the counter has tanked about 25 per cent. It has wiped off over half its value in the year 2022 so far.

Recently, BofA Securities downgraded the rating on Zomato to ‘Neutral’ from ‘Buy’ and cut the target price from Rs 115 to Rs 80.

According to the brokerage, in the current rising interest rate scenario, investors are focusing more on profitability rather than revenue growth. “Zomato continues to be a loss-making company that focuses on revenue growth,” it said.

“The current scenario of rate hikes has severely impacted tech stocks as investors have realized that the profitability and cash flows are more important than just revenue growth and their sky-high valuations aren’t sustainable. Similarly in India, Zomato dipped to a record low. The company is still a loss-making one, and it is expected to break even in terms of operating profitability by FY24, the company was demanding an FY21 P/S multiple of 29.9x during its IPO which was high compared to its global peers, hence, a reality check has led to such severe correction,” said Santosh Meena, Head of Research, Swastika Investmart.

Listed in July 2021, Zomato had raised Rs 9,375 crore via its initial stake sale last year. The company saw robust bidding and investors made bids for more than Rs 3 lakh crore for the issue.

“The beauty (or should I say ugliness) of an all-time low in a stock is that anyone who bought at any price is at a loss now,” said Sandip Sabharwal, an independent market commentator, on the crash in the stock.

The selloff in the counter has come when almost all tech stocks are suffering, even those listed in the US. Analysts are hopeful on these counters in the long term, and believe volatility will continue to plague them in the short term.

Institutional investors trimmed their stake in the company in the March 2022 quarter.

Domestic mutual funds have sold 83 million equity shares or 1.1 per cent stake in the company to own 2.82 per cent. FPIs have offloaded 68 million equity shares or 0.9 per cent stake in the company to own a 10.17 per cent stake.

However, individual shareholders’ holding in Zomato increased by 2.07 percentage points to 9.07 per cent.

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