Zomato sees 2% stake change hands in block deal, Softbank likely seller
On August 28, the share price of Zomato, a popular online food delivery platform, experienced a 5 percent increase in its opening price. This rise in share price was attributed to a block deal involving the exchange of 184 million shares, which represented a 2.14 percent stake in the company.
Although the specific buyers and sellers involved in the block deal were not immediately disclosed, sources indicated that SoftBank was likely to be one of the sellers. The reason behind this potential sale was the expiration of the lock-in period for investors following the Blinkit deal, which concluded on August 25. The Blinkit deal involved SoftBank selling its existing stake to Zomato.
SoftBank currently owns a 3.35 percent stake in Zomato, which it acquired during the Blinkit deal. This deal allowed SoftBank to exchange its holdings for a stake in the company. Additionally, Tiger Global and Sequoia Capital also received Zomato shares through the Blinkit deal, and there were suggestions that they might also consider selling these shares on the market.
Overall, the increase in Zomato’s share price was driven by the anticipation and speculation surrounding the block deal, as well as the potential sale of shares by investors like SoftBank following the expiration of the lock-in period. It’s worth noting that this information is based on the data available up until my knowledge cutoff date in September 2021, and I do not have access to real-time data beyond that point.
At 9:45 am, on the National Stock Exchange (NSE), the Zomato stock was trading at a price of Rs 92.70 per share. The trading volume at that time stood at 42 million shares.
Zomato has been shifting its focus towards achieving profitability, and one of the steps it took was the introduction of a platform fee. This platform fee amounts to Rs 2 and is charged regardless of the total value of the items in the customer’s cart.
Morgan Stanley, an investment bank and financial services company, maintains an ‘Overweight’ rating on Zomato’s stock. They have set a target price of Rs 115 per share. The reasoning behind this positive outlook is based on the potential impact of the platform fee on Zomato’s profitability. Morgan Stanley believes that if Zomato continues to adhere to this fee structure, it could have a significant positive effect on the company’s profitability.
In the first quarter of the fiscal year 2023-2024 (Q1 FY24), Zomato reported an adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin of 2.5 percent specifically for its food delivery segment.
Morgan Stanley, a financial services firm, projects that this margin will increase to around 4 percent to 4.7 percent by the fiscal years 2025-2026 (FY26) and 2026-2027 (FY27) respectively. This projection indicates a positive trend towards higher profitability for Zomato’s food delivery operations.
In the quarter that ended in June, Zomato achieved a noteworthy milestone by reporting a profit after tax (PAT) of Rs 2 crore (approximately $270,000 USD) for the first time. Given that Zomato has faced periods of losses in the past, it has been permitted to offset these historical losses against profits in future periods, as per India’s tax regulations. This practice, known as carrying forward losses, is aimed at supporting companies that are transitioning from loss-making phases to profitability. It provides them with a mechanism to reduce their tax liability as they begin to generate profits.
Zomato’s revenue for the specified period amounted to Rs 2,416 crore, marking a substantial increase of 70.9 percent when compared to the revenue recorded in the corresponding period of the previous year. This growth in revenue was attributed to several factors that contributed to increased demand for Zomato’s services.
One of the contributing factors to the revenue growth was the cooling inflation, which likely led to more disposable income for consumers, allowing them to spend on food delivery services. Additionally, the strength and effectiveness of Zomato’s loyalty program played a role in driving demand growth. Loyalty programs can incentivize customers to continue using a platform’s services, thereby boosting transaction volumes and overall revenue.
It’s worth noting that revenue growth is a positive sign for a company, as it indicates an increase in the overall value of transactions and customer engagement. However, other factors such as operational costs, profitability, and market competition also play a crucial role in assessing a company’s financial health and success.
As always, financial performance is influenced by various internal and external factors, and it’s important to consider a holistic view of a company’s operations and industry dynamics when evaluating its performance.
