Zomato share price jumps 4% as company’s board mulls acquisition proposals on June 24 – What brokerage says?

Food aggregator, Zomato Limited shares jumped nearly 4 per cent to Rs 68.60 per share on the BSE intraday during Wednesday's trading session as the company said its board will meet on Friday, June 24, to consider a proposed acquisition. The stock has gained 5.5 per cent in the last two sessions.  

Zomato on Tuesday, in an exchange filing, said, “The board of directors meeting is scheduled on June 24 to consider a potential acquisition transaction by the company, the consideration for the same may be discharged through the issuance of equity shares on a preferential basis."

The counter has outperformed the market by gaining nearly 18.5 per cent in the last one month, as against 4 per cent fall in the S& BSE Sensex. It hit a 52-week low of Rs 50.35 on May 11, 2022. 

On the contrary, the stock price of Zomato has more-than-halved or tanked 51 per cent in the last six months, as against an 8 per cent fall in the Sensex. It has corrected 59 per cent from its record high of Rs 169 touched on November 16, 2021.  

The new-age company earlier in July last year had raised Rs 9,375 crore through an initial public offer (IPO) by issuing shares at a price of Rs 76 per share. 

Global brokerage firm HSBC in its note said that the investors are broadly divided on Zomato’s strategy to acquire Blinkit and some even question the merit of foraying into Grocery (hyperlocal). In brokerage’s claim for Zomato building grocery business will work as a “poison pill”.  

It would need reasonably high investment and hence cash burn and is likely to be a significant logistical challenge to execute as well, but still, Zomato can’t afford not to do it, HSBC’s view 

The brokerage maintained a Buy rating with a target price of Rs 85 per share, which implies around a 29 per cent surge in the stock price as compared to Tuesday’s closing of Rs 66 apiece.