Zomato’s share price experienced a decline of 5.4% on Friday, falling to ₹256 on the Bombay Stock Exchange (BSE). By 12:43 PM, shares were trading at ₹259.6, reflecting a drop of 4% compared to a modest rise of 0.33% in the BSE Sensex. This downturn in Zomato’s share price coincides with the announcement of the company's fundraising plans, which were disclosed on October 18.
In a recent filing with the stock exchange, Zomato revealed that the board of directors would convene on Tuesday, October 22, 2024, to discuss and approve the raising of funds through the issuance of equity shares via a Qualified Institutional Placement (QIP).
This strategic move aims to strengthen the company’s financial position, which is crucial for those looking to invest in stocks.
Competitive landscape and upcoming IPO
Interestingly, Zomato’s decision to raise funds comes ahead of the anticipated initial public offering (IPO) of its rival, Swiggy. Scheduled for November 2024, Swiggy's IPO is expected to generate up to ₹3,750 crore through a fresh issue of shares, accompanied by an offer for sale (OFS) of approximately 185.28 million equity shares. Details regarding the IPO date, lot size, and price bands have yet to be announced.
Global brokerage Macquarie noted that Zomato’s quick commerce platform, Blinkit, maintains a significant advantage over Swiggy’s Instamart. This advantage is evident in key performance metrics, including monthly transacting users (MTU), average order value (AOV), efficiency based on dark store throughput, and take-rate derived from advertisements and direct brand sourcing.
According to the report titled “Head-to-Head: Zomato versus Swiggy,” Swiggy faces a more straightforward path in food delivery, while the quick commerce sector poses greater challenges.
Anticipations for Zomato's Q2 results
As the board prepares for the meeting, it will also evaluate the unaudited financial outcomes for the quarter and half-year ending September 30, 2024. Analysts from ICICI Securities have forecasted that Zomato's gross order value (GOV) in food delivery will increase by 6% quarter-on-quarter (Q-o-Q) and 23% year-on-year (Y-o-Y) for Q2 FY25.
In parallel, Blinkit’s GOV is anticipated to grow by 20.1% Q-o-Q and a remarkable 114.1% Y-o-Y. Furthermore, revenue from Hyperpure’s business segment is expected to rise by 20% Q-o-Q and 95.2% Y-o-Y in the same quarter.
Overall, analysts project an adjusted revenue growth of 13.1% Q-o-Q and an impressive 57.7% Y-o-Y for Zomato in Q2. The adjusted EBITDA margin is likely to improve to 6.8% of adjusted revenue, compared to 6.6% and 1.3% in Q1 FY25 and Q2 FY24, respectively.
The brokerage estimates an adjusted EBITDA of ₹350 crore for Q2 FY25, significantly up from ₹300 crore in Q1 FY25 and ₹40 crore in Q2 FY24.
Implications for investors
The expected net profit for Zomato is projected to reach ₹274.3 crore, marking a substantial year-on-year growth of 662% from ₹36 crore and an 8.4% quarter-on-quarter increase from ₹253 crore. As Zomato navigates its fundraising efforts and prepares for its quarterly results, investors are keenly watching these developments.
For those looking to invest in stocks, understanding Zomato’s strategy in the face of competition and its financial performance could provide valuable insights. With the food delivery sector evolving rapidly, staying informed about these trends is essential for making informed investment decisions.
For android only