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Zomato Shares Drop 69% So Far in 2022; What Should Investors Do Now? – News18

Zomato shares extended decline with the stock hitting a new all-time low for the second consecutive day on Tuesday of Rs 44 apiece on the BSE a day after the stock was down about 13 per cent as the lock-in period for pre-IPO shareholders (promoters, employees & other institutions) had ended.

Jefferies Says Night is the Darkest Before Dawn; Maintains Buy on Stock

“Worries of Fed tightening & investor focus on cash flow have been weighing on the Internet names, including food tech, globally. From an exuberance at the time of listing last year, Zomato is now unloved, having underperformed peers YTD. Blinkit acquisition elongates path to profitability and despite management guidance on break-even in food delivery, investors are not giving many benefits of doubt,” said Jefferies in a note.

The global brokerage thinks this makes for a great case for LT (long-term) investors to Buy Zomato shares and has a target price of Rs 100 on the stock.

“Zomato management has also accelerated its journey towards better unit economics and is now eyeing a break-even in the food delivery business in the foreseeable future. Adjusted Ebitda losses for 4QFY22 was <US $30m, with food delivery losses at US$10m. We expect this to get better quarter after quarter now as mgmt. lowers its CAC by tapping into its MAU to drive MTU, reduces discounts, increases take-rates among others,” Jefferies added.

Unlike the past when Zomato intended to invest across multiple businesses, with some strategic (eyeing an eventual merger) and others as a financial investment, the company now intends to conserve cash. The company does not plan to commit any resources for existing or now minority investments, the brokerage highlighted.

The lock-in period of one year for around 613 crore shares or 78 percent of Zomato’s stock ended on July 23. Market analysts were expecting shares to witness selloff pressure this week. The public issue of Zomato was listed on BSE and NSE on 23rd July 2021.

According to rules set by the market regulator Sebi, those who held shares of a company before the IPO cannot sell their shares for a period of one year following the listing.

“Following the lock-in period of one year, the pre-offer shareholders may sell their shareholding in our company, depending on market conditions and their investment horizon. Further, any perception by investors that such sales might occur could additionally affect the trading price of the equity shares,” Zomato said in a Red Herring Prospectus before its IPO.

The food delivery company had made a spectacular entry on Dalal Street on July 23 last year. It issued shares at Rs 76 in the IPO but it soon became a multibagger, scaling a lifetime high of Rs 169 on the BSE. However, since then the journey has been downhill as investor euphoria has waned. Analysts and investors have started questioning the company’s profitability plan even as Zomato has had very little to show.

At 10.16 am, the stock was trading 7.04 percent down on the National Stock Exchange at Rs 44.25.

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