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What is “Zomato Crisis – What should Investors do?”

"Zomato Crisis - What should Investors do?"

From the announcement of 10-minute delivery in March to the acquisition of Blinkit in July, Zomato has been in the news for various reasons this year, some of which were not positive. At one point, the shares of this promoter-less company reached up to 41.35. Currently, Zomato’s share price is hovering around the 60 range, but once again, Zomato is facing a crisis.

Let's take a closer look at this new crisis.

Zomato’s co-founder Mohit Gupta recently submitted his resignation. Interestingly, this marks the third management-level exit at Zomato this month. Prior to this, Siddharth Jhawar (Head of Intercity Legends) and Rahul Ganjoo (Head of New Initiatives) also resigned from Zomato.

Earlier in August, Deputy CFO Nitin Savara also resigned.

Successive exits at the senior management level are generally not seen as positive. In fact, such exits at the management level are often considered a sign of trouble, especially in the stock market, which does not favor such disruptions and tends to view senior management exits negatively.

Until recently, Zomato had been performing well in the market, and it was believed that the management was now focusing on profitability rather than just growth. Even after quarterly earnings, the company received appreciation for adopting better disclosure practices compared to before.

Everything was going well until this wave of resignations, followed by layoffs affecting 150 employees.

Last year, Zomato ceased operations in the US, Singapore, Lebanon, and the UK. It has been reported this week that operations in the UAE will also be shut down by Zomato.

What should do with Zomato shares – buy, sell or hold?
Let's see Zomato's fundamentals

Market cap ₹ 54,902.20 cr.

Enterprise value ₹ 53,437.50 cr.

No. Of shares 855.17 cr.

P/E 0

P/B 2.7

Face value ₹ 1

Div. Yield 0 %

Book value (TTM) ₹ 23.78

Promoter holding 0 %

EPS (TTM) ₹ -0.61

ROE -9.53 %

ROCE -8.75%

Profit growth -23.93 %

 
Profit & Loss (All Figures in Cr. Adjusted EPS in Rs.)

 

PARTICULARS

MAR 2018

MAR 2019

MAR 2020

MAR 2021

MAR 2022

Net Sales 

371.03

1,162.87

2,336.35

1,713.90

3,611

Total Expenditure 

423.96

3,303.82

4,574.63

2,052.90

5,249

Operating Profit 

-52.93

-2,140.95

-2,238.29

-339

-1,638

Other Income 

17.78

94.16

181.01

136.60

508.10

Interest 

24.13

58.51

11.13

7.90

5.50

Depreciation 

12.51

23.19

73.60

128.90

133.40

Exceptional Items 

-6.70

1,188.02

-309.18

-546.80

171

Profit Before Tax 

-78.49

-940.47

-2,451.18

-886

-1,097.80

Tax 

0

0

0

0

0.20

Net Profit 

-78.49

-940.47

-2,451.18

-886

-1,098

Adjusted EPS (Rs.) 

-2,616.43

-27,660.79

-81,705.90

0

-1.44

Cash Flows (All Figures are in Crores.)

 

PARTICULARS

MAR 2018

MAR 2019

MAR 2020

MAR 2021

MAR 2022

Profit from operations 

-78.49

-940.47

-2,451.18

-886

-1,097.80

   

Adjustment 

13.84

-928.24

419.72

736.10

356.80

   

Changes in Assets & Liabilities 

6.42

158.33

-10.58

-130.30

267.10

   

Tax Paid 

-3.44

-8.17

-31.87

-0.80

-34.70

   

Operating Cash Flow 

-61.67

-1,718.54

-2,073.91

-281

-508.60

   

Investing Cash Flow 

-895.26

-1,315.25

1,646.04

-6,114.90

-8,128.70

   

Financing Cash Flow 

968.99

3,150.32

362.28

6,474.50

8,762.80

   

Net Cash Flow 

12.06

116.53

-65.58

78.60

125.50

   
What should investors do?
Let's see what the top brokerage houses have to say -

Top brokerages have given their recommendations on this stock. While Jefferies has remained bullish, estimating an upside of nearly 60 per cent or target of Rs 100, Macquarie has maintained a ‘Neutral’ rating with a price target of Rs 60. Morgan Stanley has given an ‘Overweight’ rating with a target of Rs 92.  

The company has claimed that it will soon breakeven and turn profitable. In the quarter ended 30 September the company posted net loss of Rs 251 crore narrowing it from Rs 430 crore the company reported a year back. 

Moreover, none of the people who resigned from Zomato were key managerial personnel (KMP) and the disclosures were made voluntarily. As per the law, companies are mandated to disclose exits of KMPs only.

Some of the recent resignations may not be a big headache for the company as they were getting redundant to an extent after the management said it will be focussing mainly on three businesses: Deepinder Goyal directly leading food delivery and overseeing ther other two businesses; Albinder Dhindsa heading Blinkit; and, Hyperpure under Rakesh Ranjan.

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