Zomato shares tumble 5% as ONDC enters food delivery space; What investors should know

Zomato’s share price has been under sell-off stress since Tuesday morning at the stock market. Zomato’s share price opened on the lower side earlier today and went on to hit an intraday low of Rs 61.50 apiece, nearly 5.20 per cent lower from its Monday closure of Rs 64.90 apiece on NSE.

Will ONDC turn out to be a threat for Zomato and Swiggy?

The Indian government-run ONDC (Open Network for Digital Commerce), which lets restaurants sell food directly to consumers without the need for a third party vendor seems to be giving tough competition to private players Swiggy and Zomato.

Screenshots comparing food items on Zomato and ONDC have taken social media by storm earlier this week. A plain Margherita pizza costs Rs 195 on Zomato and Rs 156 on ONDC, about 20 per cent cheaper. Non-vegetarian food lovers will have to shell out Rs 280 for a McChicken Burger on Zomato but only Rs 109 on ONDC.

The Open Network for Digital Commerce boasts of 12 million sellers who sell and resell their products and services on its platform.

Stock Prices

Zomato’s shares were listed on the exchanges on July 23, 2021. The IPO was priced at Rs 76 per share. The stock has underperformed on benchmark Nifty as it has given returns of 3.6% over the last one-year period versus an 11% upside seen in the 50-stock index during the same period.

The stock has been highly volatile and traded with a 1-year beta of 1.54, the Trend Lyne data further suggested. The 52-week high for this stock is Rs 79.80 while its 52-week low is Rs 40.60.

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Expert advice

With ONDC becoming a possible threat to Zomato and Swiggy’s market share, Zomato’s shares have already tumbled over 5 per cent in the day’s trade, analysts said.

With restaurants moving to ONDC, Karan Taurani of Elara Capital believes raising commission rates could be tough for Zomato over the medium term, which is a key driver for their profitability guidance.

“ONDC augurs well for food as a product which has lower average order value versus e-commerce and white goods, where there are trust issues,” Taurani said.

However, it will be a long road for ONDC to win over customers, loyal to the other two food delivery platforms. Some users who ordered food through ONDC complained about stale food and longer delivery time, over 90 minutes in some cases.

Taurani also stated that concerns over Zomato or Swiggy’s market share decline will hold ground, provided ONDC’s user experience improves over a period of time. “Currently, it is very poor,” he said.

Looking for a path to profitability, Zomato and Swiggy’s battle with ODNC will certainly be a long-drawn one. For now, investors are eyeing on Zomato’s Q4 numbers, which are yet to be announced.

Should You Buy Zomato Stocks?

Reacting to Zomato’s share price taking a nosedive today, Ravi Singhal, CEO at GCL Broking said, “Recently, Invesco has cut down valuations of Swiggy from $8.2 billion to $5.5 billion. As Invesco’s market valuation methodology applies on Zomato as well, the market has gone negative on Zomato as well.”

Sumeet Bagadia, Executive Director at Choice Broking said, “Zomato’s share price is currently in Rs 58 to Rs 70 range and it may go up to Rs 52 apiece levels, if this Rs 58 support is broken.”

Advising ‘buy on dips’ strategy to those who believe in bottom fishing, Ravi Singhal of GCL Broking said, “From fundamental perspective, Zomato is expected to come out of the base building mode and the stock may give sharp upside move in next one to two quarters. So, it’s time for medium to long term investors to start accumulating Zomato shares for medium to long term time horizon.”

Sumeet Bagadia advised positional investors to wait for some time and the stock is looking weak on the chart pattern. He said that ideal buying zone for the stock would be close to its next support and advised investors to wait for more fall.

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