Food delivery company Zomato Ltd has said it was sticking to its original issue price of Rs 70.76 per share for the acquisition of Blink Commerce Private Ltd (“Blinkit”).
In a regulatory filing late on Friday, Zomato said that this issue price was arrived at, based on the valuation report from Ernst and Young Merchant Banking Services LLP (EY).
The company went in for a second valuation report from EY on the specific requests from the BSE Ltd and the National Stock Exchange Ltd.
The second valuation report from EY used different valuation methodologies viz. net asset value and comparable trading multiples.
“The New Report was not an addendum to the Original Report and had no bearing or relevance on the issue price of the shares, since the issue price per share, arrived at as per SEBI ICDR (as per the Original Report), is higher than the value(s) per share as per the New Report.
“It was solely obtained pursuant to specific request of the exchange(s) and submitted to them (BSE on July 20, 2022 and NSE on July 21, 2022),” Zomato said.
However, the food delivery major did not disclose the price arrived at by EY in its second report.
The company had said it will issue on preferential basis equity shares up to 62,85,30,012 for a consideration other than cash, being the discharge of total purchase consideration of Rs 4,447.47 crore for the acquisition of up to 33,018 share of Blinkit.
Earlier, Zomato, on direction of the Securities and Exchange Board of India (SEBI), had come with clarifications on the issues raised by the media on the Blinkit acquisition.
As part of the acquisition, it said it will also acquire Blinkit’s net debt of Rs 673.1 crore.
“Please note that the deal value should include only the consideration paid for the purchase of the proposed acquisition targets and should not include any estimated future investments into the acquisition targets by Zomato,” the company said in a statement.
On the issue of conflict of interest in Blinkit acquisition — Akriti Chopra, a senior official, is the wife of Albinder Singh Dhindhsa, the co-founder of Blinkit — Zomato said she is neither a Director or key managerial personnel as defined under the Companies Act, 2013 and Listing Regulations, nor is she a person in accordance with whose directions or instructions the Board of Directors is accustomed to act.
“Additionally since the inception of the deal, she was and continues to remain the Chief People Officer of the Company and this transaction had no overlap with her role,” Zomato said.
Accordingly, she is not a related party to this transaction, under the definition of related party and KMP in terms of Companies Act, 2013 and/or Listing Regulations, hence there was no requirement for making a disclosure for a ‘related party transaction’ in this regard, the company said.
“We also took an independent opinion from our legal advisor Saraf and Partners on there being no related party transaction under applicable laws,” Zomato added.
Zomato’s scrip is changing hands at about Rs 54.50 per share at the bourses. It came out with an initial public offer (IPO) of its equity shares at a price of Rs 72 to Rs 76.
The scrip also touched 52 week high of Rs 169.10 and then slid down to change hands at Rs 54.50 per share. The market capitalistion was Rs 42,946.03 crore.
Noted investor Rakesh Jhunjhunwala, at a conclave organised by a media house, had said that people will laugh at him on hearing him say that they should not buy Zomato shares. At that time the share was orbiting at a higher plane.
Jhunjhunwala also said that the market will correct itself.
Others too expressed views on buying Zomato’s shares at the IPO.
Jefferies India, in a research report on Zomato, has said: “With only 15 mn monthly transacting users currently, Zomato has a long run-way for customer acquisition and revenue growth, albeit this may come at the cost of near-term profitability. The platform also has an optionality of expanding into other adjacent categories such as grocery etc.”
It recommended a buy call on Zomato’s shares listed out the following as the upside catalysts: Strong macro and up-tick in discretionary demand, rapid adoption of digital commerce which drives user acquisition for platforms such as Zomato, and successful ramp-up across adjacent businesses such as groceries, etc.
On the downside catalysts, the report listed: Increase in competition from new entrants, Swiggy, direct ordering, slower-than-expected market growth, adverse regulations for platform businesses, uncertainty on unit economics, and challenges in expanding beyond the core.