Zomato shares fall 8.2% on Blinkit acquisition questions

The shares of India's Zomato Ltd fell as much as 8.2% on Tuesday, extending losses for a second straight day as investors question the rationale behind the company's deal to buy local grocery delivery startup Blinkit.

On Friday, the food delivery company Ant Group said it would acquire Blinkit for 44.47 billion rupees $568.16 million in stock, as it tries to gain a foothold in the fiercely competitive quick delivery market.

The deal came after it bought a more than 9% stake in SoftBank Group-backed Blinkit for more than 5.18 billion rupees in August, with a promise to invest as much as $400 million in the Indian quick-commerce market over the next two years.

Analysts at Kotak Institutional Equities wrote in a note that Blinkit will require investments beyond the $400 million envisaged by Zomato.

The company's shares fell by as much as 14% since the announcement of the offer, shedding more than 76.78 billion rupees in market value. They are down almost 48% since going public last July.

The dilution of about 7.25% of the total outstanding shares post acquisition basis would be caused by the issuance of new shares by Zomato to Blinkit, including employee stock option pool.

The quick-selling sector is growing at a rapid rate, with rivals like Swiggy, Reliance Industries-backed Dunzo, Tata-backed BigBasket and Zepto making big investments.

It was worth $300 million last year and is expected to grow 10 -- 15 times to $5 billion by the year 2025, according to research firm RedSeer.

Price competition, relatively lower margin nature of the category, high number of products per order that need efficient fulfilment and very high competition have made the e-grocery economics hard to crack, according to Kotak analysts.