Zomato falls 15%, hits lowest level since July 2022 on high volumes

Shares of food aggregator platform Zomato fell 15 percent to a near six-month low of Rs 44.35 on the BSE in intraday trade on Wednesday amid heavy volumes. The stock was trading at its lowest level since July 28, 2022. It had touched an all-time low of Rs 40.55 on July 27, 2022.

At 10:53 AM, Zomato was trading 7 percent lower at Rs 48.65, compared with a 1.04 percent fall in the S&P BSE Sensex. A combined 115 million equity shares had changed hands on the NSE and BSE till the time of writing this report.
In the past three months, Zomato’s share price has fallen 31 percent, compared to a 1.5 percent rise in the S&P BSE Sensex.
According to media reports, Zomato has discontinued its 10-minute delivery offering, Zomato Instant, as the business has struggled to grow and faces challenges in becoming profitable. The company has denied these claims, stating that the business has just been renamed. CLICK HERE FOR THE FULL REPORT
Meanwhile, Zomato has relaunched its loyalty program and renamed it ‘Zomato Gold’. The new program replaces its previous versions “Pro” and “Pro Plus” which were probably discontinued for both new subscriptions and renewals at the beginning of the second quarter of 2023. The development is in line with the management’s previous comment that it will soon reinstate a revamped version of the loyalty program.
The latest version offers free food delivery services for all orders above Rs 199 from restaurants within 10 km of the user, additional discounts of up to 30% on select restaurants, guaranteed compensation of 100 rupees coupon in case of delays and VIP. access to restaurants during peak hours. It also offers benefits when eating out at certain restaurants. The starting price is Rs 149 for 3 months subscription (annual plans are not yet available).
“The relaunch of the loyalty program is important due to growing concerns over the sequential growth of Zomato’s food delivery business and the high likelihood that the company may have lost market share to Swiggy in recent quarters, already that the latter had continued to run its loyalty program, especially when ‘Pro Plus’ was not around,” analysts at JM Financial Institutional Securities said in an Internet sector update.
While it is relevant to note that loyalty programs usually carry the risk of hurting margins, the brokerage believes that Zomato has enough leverage (room to increase restaurant take-up rates and advertising revenue, and reduce charges of delivery) to support the program without harm. its food delivery contribution margin higher than the 4.5 percent reported in 2Q13.
That said, analysts at HSBC Global Research believe the sluggish industry and aggressive competition may weigh on growth in 3Q13, although profitability should continue to improve. “High competitive intensity may restrict further profitability gains in 2023; growth acceleration is more critical. Blinkit business will continue to contribute more to Zomato’s valuation in 2023,” the analysts said.

Technological perspective

Outlook: Limited upside

Target: Rs 54.35
Zomato stock is nearing its all-time low of Rs 40.55, touched on July 27, 2022. Today it fell to a low of Rs 44.35, breaking below the lower end of the band of Bollinger (placed at Rs. 47.4) on the day on the daily chart. The stock, however, recovered some of the losses and was once again above the mentioned level. Thus, Rs 47.4 remains its immediate support level.
Also, as per the monthly Fibonacci chart, the next support is at Rs 46.89, followed by Rs 45.31.
However, the stock is testing the oversold zone on the relative strength indicator (RSI) on the daily chart, suggesting that the stock may try to recover lost ground. In this case, the upside resistances are at Rs 54.35 (its 20-day moving average), Rs 59.7 (50-DMA).

(With input from Nikita Vashisht)