Zomato Ltd., the food delivery aggregator, has been making waves in the stock market lately. On Monday, November 25, its shares saw a noticeable surge, driven by two significant developments: the company’s inclusion in the 30-stock BSE Sensex and an approval for its ₹8,500 crore Qualified Institutional Placement (QIP). Let’s dive deeper to unpack these triggers and explore what’s behind the remarkable rally of Zomato share this year.
1. Zomato’s Entry into the BSE Sensex
Zomato is all set to become the first new-age tech stock to join the prestigious 30-stock BSE Sensex, replacing JSW Steel as part of the index reconstitution effective December 23. This milestone is a testament to Zomato’s growing influence and solid market performance.
Why does this matter? Well, being a part of the Sensex attracts institutional investors, as many mutual funds and index funds are required to hold stocks in the index. This could potentially bring more liquidity and stability to Zomato shares, further fueling investor confidence.
2. Approval for ₹8,500 Crore Fundraise
Another key factor behind the surge is Zomato’s shareholders approving its ₹8,500 crore fundraise via the QIP mode. Back in October, the board greenlit this move to bolster the company’s financial strength.
So, what’s the game plan? The fundraise is aimed at fortifying Zomato’s balance sheet, enabling the company to maintain its competitive edge in a highly dynamic and challenging market.
3. A Year of Stellar Performance
Zomato has had an impressive year, with its stock price skyrocketing by a whopping 126% so far in 2024. Over the past 12 months, Zomato share have climbed nearly 147%, reflecting investor optimism and market trust in the company’s long-term growth trajectory.
In contrast, JSW Steel, the outgoing Sensex constituent, delivered a modest 10% gain during the same period. This comparison highlights the stark difference in performance between the two stocks.
4. Challenges Along the Way
While Zomato’s growth story looks promising, it hasn’t been without hurdles. The company’s cash reserves took a hit in the September 2024 quarter, dropping by ₹1,726 crore. This was largely due to the ₹2,014 crore acquisition of Paytm’s entertainment ticketing business.
Currently, Zomato’s cash balance stands at ₹10,800 crore, down from ₹14,400 crore. Investments in quick commerce and acquisitions have also contributed to the decline.
5. Balancing Growth and Financial Stability
Despite the dip in cash reserves, Zomato has made strides in generating cash post-IPO. However, the company recognizes the need to further strengthen its financial position to thrive in a highly competitive market. The recent fundraise is a strategic move in that direction, ensuring the business stays resilient.
6. Contrasting Analyst Opinions
When it comes to Zomato’s future, analysts seem divided. While global brokerage firm Morgan Stanley has an ‘Overweight’ rating with an increased price target of ₹355 (up from ₹278), Macquarie isn’t as optimistic. The latter has labeled the stock ‘Underperform’ with a price target of ₹130 per share.
Interestingly, out of the 27 analysts tracking the stock, 24 have a ‘Buy’ rating, and only three have a ‘Sell’ recommendation. This shows a largely positive sentiment in the market for Zomato share, but the divergence in opinions underscores the uncertainty that can accompany high-growth tech stocks.
7. Zomato’s Growing Popularity
Zomato’s inclusion in the Sensex has undoubtedly boosted its visibility among investors. Being part of this elite group not only signifies the company’s market credibility but also increases its appeal to domestic and international investors alike.
8. The Competitive Edge
To stay ahead in the game, Zomato has been investing in quick commerce and making strategic acquisitions. While these moves may strain cash reserves in the short term, they’re critical for building a robust ecosystem that can support long-term growth.
9. What Lies Ahead for Zomato Shares?
As of now, Zomato share are trading at ₹280.71 on the NSE, reflecting a 6.25% jump. The stock has more than doubled in 2024, and with the ongoing momentum, the future looks promising. However, investors should remain cautious and keep an eye on market dynamics and the company’s ability to execute its growth strategies effectively.
10. Lessons for Investors
Zomato journey offers valuable insights for investors. Whether you’re a seasoned trader or a newbie, it’s crucial to analyze the fundamentals and market sentiment before jumping on the bandwagon. While the stock’s recent performance is impressive, it’s essential to weigh the risks and rewards.
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Conclusion
Zomato’s remarkable rally in 2024 is a result of a perfect storm of factors, from its inclusion in the Sensex to strategic fundraises. The company’s ability to navigate challenges and adapt to market demands has set it apart as a leader in the tech and food delivery space. While the road ahead may have its bumps, Zomato is undoubtedly a stock to watch.
