Zomato stock price falls nearly 20% in two sessions, drops 75% on 52-week high but Jefferies says buy for massive target—Here is why!

Shares of Zomato dropped over 12% in BSE intraday day trade on Tuesday. The counter is trading at over 75% discount from its 52-week high value of Rs 169.10 per share. The sharp fall in share price was triggered by unlocking of mandatory one year lock-in period of pre-offer equity shares. Around 613 crore shares came out of mandatory one year lock-in on July 23. As per the rule, the company which does not have promoters, the equity share capital held by the company before IPO is locked for a period of one year from the date of allotment of shares. During this period, these shareholders are barred from selling any equity.  However, the restrictions lifted on July 23.  

Meanwhile, global brokerage house Jefferies has suggested a buy on the counter. As per the brokerage, worries of Fed tightening are weighing on the profitless Internet names globally, including food tech companies, such as Zomato.  

"The entire sector has been going through a period of readjustment as the focus is shifting from growth to cash flow. FANGMAN is down 15-65% YTD. This has also been impacting the global food delivery stocks which are down 50-65% YTD, with Zomato being the worst performing stock," it said.  

However, saying that night is darkest just before dawn in context to Zomato share, the brokerage maintained a high conviction buy call with target price of Rs 100 per share.  

It feels, 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 a break-even in food delivery, investors are not giving much benefit of doubt," it observed.  

It said at current levels, Zomato share price is still at a premium to global & regional peers, but this is justified in the context of long growth run-way along with higher explicit medium-term forecasts on GMV.  

At around 2pm, shares of Zomato were trading lower by 12% or Rs 5.71 to Rs 41.85 per share on the BSE.  

Speaking of what should investors do, Punit Patni, Equity Research Analyst, Swastika Investmart Ltd says one should avoid making position in this counter.

"The company will take significant time to show profitability and the current market sentiments are punishing startups that are growing without showing profits. Therefore, we are averse to Zomato Ltd. despite its strong position in the online Food Service platforms and the current correction," he said.