Zomato shares fall sharply for second day. Should you buy?

Zomato shares continued to extend the fall for the second consecutive day on Tuesday after plunging nearly 9% in Monday's session as the mandatory 30 days lock-in period for anchor investors ended. Shares of the online food delivery platform declined over 3% to ₹123 per share on the BSE in Tuesday's opening deals, registering a fall of over 13% in the last two days.

Santosh Meena, Head of Research, Swastika Investmart on Zomato share price falling said, “It has been observed that some selling pressure is seen for 1-2 days in most of the counters after the lock-in period ends for their anchor investors post listing but it acts as a buying opportunity in most of the quality stocks where low made during this period acts as strong support for the next leg of rally. If we talk about Zomato then 120 is strong support and we could see some buying attraction around this level.”

Domestic brokerage and research firm ICICI Securities on Monday said that it has initiated coverage with a Buy rating on Zomato, and sees it as a great value stock unlike what street believes it to be. It sees huge upside on the home-grown food-delivery company's stock with a target price of ₹220 per share. Its target price bets on around 22 million Indians ordering ~4 times per month in FY25E.

"Contrary to its global peers (DoorDash and Amazon etc.), Zomato witnessed a sharp and artificial drop in key metrics during the first wave. Accordingly, we expect a robust recovery going ahead. This bounce back should more than offset the unlock-led uptick in physical channel activity the near term. Nevertheless, the normalisation of AOVs and increasing bargaining power of restaurants are key variables to watch out for," the brokerage said in a note.

In its first earnings release after last month’s blockbuster initial public offering (IPO), the food-tech company reported a net loss to ₹360.7 crore for June quarter as compared to ₹99.8 crore in-the year-ago period. 

Those at Jefferies in a note post the Q1 results said that Zomato reported a strong beat on revenues led by +37% quarter-on-quarter (QoQ) in GOV (gross order value). ''While delivery business was strong, dining-out was impacted by the second Covid wave. YoY numbers are very strong given the impact of first Covid wave in the base,'' it said. The brokerage has a Buy rating on the stock with the target price of ₹175 per share (from ₹170), the note on August 10 stated.