Zomato stocks price: Zomato slides 7% on fears ONDC may hit profitability

Mumbai: Investors dumped shares of Zomato causing the stock price to drop as much as 7% in Tuesday’s trading following Invesco’s sharp markdown of rival Swiggy’s valuations and fears of the food-tech sector being disrupted by a new entrant – government-backed ONDC (Open Network For Digital Commerce).

Shares of Deepinder Goyal-led online food aggregator fell to ₹60.30 apiece on the NSE – its lowest in two weeks, before settling at ₹61.40, down 5.39% from the previous close.

Analysts said the disruption by ONDC, where consumers are buying food and grocery at cheaper prices, has hurt investor sentiment in loss-making Zomato.

“For investors, there are plenty of investment avenues that have a path to profitability,” said Pankaj Pandey, head of research, ICICI Securities. “Therefore, relative attractiveness of new-age companies will remain soft.”

More than 13 crore Zomato shares were traded on BSE and NSE on Tuesday, up 1.6 times its combined average daily volume over the last one month. Zomato’s stock touched a low of ₹40.60 in July last year. Since then, it has clawed back over 50% of its losses on expectations that the company might become profitable soon. However, the stock continues to trade far below its initial public offering (IPO) price of ₹76 per share back in July 2021.

Zomato and Swiggy are two of India’s leading food delivery platforms that compete neck-and-neck with each other. As competition intensifies, a third platform, Indian government-backed Open Network for Digital Commerce (ONDC) allows customers to order food and groceries without the need of a third party app like Zomato and Swiggy.

“It is early to assess how ONDC will affect the businesses of Swiggy and Zomato, but it is a threat,” said Deepak Shenoy, founder, Capital Mind. “It will be seen in due course if this competition changes Zomato’s path to profitability. I think Blinkit is a bigger problem for Zomato,” Shenoy said.ONDC, which has been around since September 2022 and allows its users to order food at cheaper costs, is gaining popularity. This may prompt Zomato and Swiggy to offer higher discounts and other promotions to retain customers, which could lead to more cash burn and hurt profitability, analysts said. For instance, a Margherita pizza costs ₹156 on ONDC, 20% cheaper than Zomato. A McChicken burger costs ₹109 on ONDC compared with ₹280 on Zomato.

Analysts said US-based investment company Invesco cut Swiggy’s valuation to $5.5 billion – its second markdown in four months – also weighed down the Zomato stock price on Tuesday.

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