Zomato shares decline explained: Why is the scrip falling despite solid March quarter results

Zomato shares witnessed a steep fall of nearly 6 per cent on Tuesday


Shares of Zomato declined further on Tuesday after the online food delivery giant came out with its March quarter earnings on Monday.

Zomato shares fell despite the company posting a consolidated net profit of Rs 175 crore in the quarter backed by higher revenues. Zomato had posted a consolidated net loss of Rs 188 crore in the same quarter last fiscal.

One of the possible reasons for the decline in shares, despite analysts remaining bullish on the stock, is the expected rise in costs resulting from the increase in the employee stock ownership plan (ESOP).

Zomato management had said that ESOPs may go up in the current fiscal “on account of grant of ESOPs to the Blinkit leadership team and senior employees.”

ESOPs costs of the company doubled in the March quarter from Rs 84 crore in the year-ago period to Rs 161 crore in the March quarter. 

"In people-dependent businesses like ours, where great execution and constant innovation are the only determinants of survival, ESOPs are a great way to drive the high-performance culture that we thrive on," the company had said. 

According to market experts, profit booking and the market volatility in recent days could also contributed to the sell-off in Zomato shares.

Emkay Global Financial Services maintains ‘Buy’ rating on Zomato shares raising the target price from Rs 180 per share earlier to Rs 245.

Elara Capital too has a 'Buy' rating for Zomato shares with the target price being raised from Rs 250 per share to Rs 280.

Zomato shares witnessed a steep fall of nearly 6 per cent on Tuesday but recovered later. It was trading at over 2 per cent lower at 189.95 at 12.45 pm on BSE.


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