Bangalore: K Shares zomato Shares rose nearly 7% on Wednesday, after many analysts forecast higher near-term gains, recovering some losses from a sharp drop in their value after a stock lock-in period ended this week.
Ant Group-backed Zomato made a strong debut in the Mumbai market last year, but concerns about its valuation have since slashed its market value by around 68%.
“We believe the next phase of its growth will be driven by higher order frequency from its existing user base,” said analysts at Credit Suisse. Less reliance on new customers will reduce customer acquisition costs.
On Tuesday, analysts at Jefferies said the stock is a good case for buying for long-term investors, while JPMorgan said the company could also see a reduction in cash burn rates.
However, some investors cast doubt on Zomato’s profits as it absorbs its recent acquisition of local grocery delivery service Blinkit and competes with SoftBank-backed Swiggy.
“The larger issue of capital allocation discipline is something that is a matter of concern to us,” said Keyur Majmudar, managing partner, Bay Capital of India.
In June, Zomato said it would buy Blinkit, which aims to improve market share in its “quick-delivery” business, which aims to deliver groceries and other daily essentials to customers within minutes of ordering .
“They have capital committed to accelerated commerce, which is bloody given the nature and competitive intensity of that business,” Majmudar said, referring to the Blinkit deal.
Shares of Zomato, which is scheduled to report its first-quarter results on August 1, rose 3.2% to Rs 43.8 as of 0748 GMT after rising as much as 6.6% in the morning.
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