Zomato Sees No Material Impact on Financial Performance From Blinkit Strike; Stock Up 5%

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Last Updated: April 19, 2023, 12:46 IST

Zomato Ltd said on Wednesday most stores of its grocery unit Blinkit had resumed operations after being shut following wage protests, sending shares of the company up as much as 5 per cent. The disruptions have no material impact on the operations and financial performance of the company, Zomato said in a regulatory filing.

“These disruptions and changes have no material impact on the operations /financial performance of the Company (meaningfully less than 1% revenue impact) and hence we believe that this event does not warrant any disclosure under regulation 30 of the SEBI (LODR) Regulations, 2015,” the company claimed.

Zomato in its filing to the exchanges said the move has been made to “improve customer experience and reduce cancellation/ order rejection frauds by few delivery partners in the system. Such changes are done from time to time, as needed”.

The quick commerce platform Blinkit is facing backlash from its delivery partners for lowering the payout for every delivery. The company has reduced the payout from earlier Rs 25 to Rs 15 for each delivery. This has led to protests by several delivery partners across the Delhi-NCR region. The delivery partners feel that this will considerably reduce their earnings.

“We had to shut down some stores for a few days to ensure safety of our employees at stores and the delivery partners. Most of these stores have now resumed operations,” the company filing said.

What Should Investors Do?

Financial services firm Motilal Oswal initiated coverage on the stock with a target of Rs 70. The target price amounts to an upside of 30% against the previous close of Rs 53.91 (April 17) on BSE.

Motilal Oswal said, “The strong growth will be complemented by Zomato turning profitable over FY25, with gross margin improving to 33.5% in FY25 from 5.3% in FY22. Heightened competition for Blinkit and attrition at senior leadership are areas of concern. We initiate coverage with a BUY rating and Rs 70 target price, implying 30% upside.”

ICICI Securities has assigned a target price of Rs 65 on the Zomato stock.

“Slowing growth was evident in gross order value (GOV) due to post-Diwali consumption fatigue and the online-to-offline shift. However, based on sustained improvement in the underlying operating metrics, we maintain BUY on Zomato with a DCF-based target price of Rs 65. We acknowledge that further slowdown in growth poses a risk to our FY24E/FY25E estimates, but we think, at current market price, the risk reward is still skewed to the upside (2.6:1),” said the brokerage.

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