India’s leading food delivery platform Zomato has strongly rebutted a news report that claimed the company was in advanced talks to acquire logistics startup Shiprocket for $2 billion.
In a regulatory filing on Friday, Zomato said it “would like to caution investors against such incorrect news floating in the market” regarding the purported acquisition. The Gurugram-based company stated that it remains focused on existing operations and has no plans for any major takeover currently.
Zomato Issues Clarification on BSE
In a statement to the Bombay Stock Exchange (BSE), Zomato informed that certain mainstream media outlets had published articles saying the company has offered to buy Shiprocket for $2 billion.
However, the food delivery unicorn clearly denied this speculation and termed such reports as “incorrect news”. Zomato said it does not normally comment on media rumors but felt compelled to provide clarity this time due to the scale and potential impact such false reporting could have on markets.
Stock Delivers Over 100% Returns in 2022
The clarification comes at a time when Zomato stock has been on an upwards trajectory throughout 2022. After listing in July 2021, the share price had mostly languished below its IPO level of Rs 76 for many months.
However, starting April this year, the stock began notching up strong monthly gains consistently. It has delivered over 100% returns year-to-date, crossing the Rs 100 mark in early August and currently trading around Rs 130 levels.
Analysts have credited the bullish sentiment to Zomato’s push towards profitability as evident in its last two quarterly results.
Rare Instance of Two Straight Quarters of Profits
In Q2 FY23 results announced in November, Zomato posted a net profit of Rs 36 crore compared to a Rs 251 crore loss in the same period last year. This came on the back of a 72% jump in revenue to Rs 1,661 crore.
More significantly, this second straight profitable quarter indicates Zomato’s focus on better capital allocation and optimal growth rather than chasing market share blindly.
Quick Commerce Emerges as Key Growth Driver
A crucial factor in Zomato’s turnaround story has been the success of its quick commerce division Blinkit. While the food delivery business grew at a slower pace, Blinkit revenue surged 26x YoY in Q2 FY23.
Analysts feel the platform is close to cracking the unit economics code in the ultrafast grocery delivery space. Zomato CEO Deepinder Goyal has set a March 2023 deadline for Blinkit to achieve this milestone.
Apart from the bullish outlook, Zomato management also indicated no big acquisition plans are being considered currently. Hence, the emphatic dismissal of Shiprocket buyout speculation worth billions of dollars.
Shiprocket Rumors Likely a Case of Mistaken Identity
Commentators feel the baseless Shiprocket acquisition talk probably stemmed from confusion between the logistics startups name and Zomato’s own quick commerce vertical Blinkit.
With Zomato strongly focused on getting Blinkit to profitability even while rapidly expanding the 10-minute grocery delivery service, analysts find it hard to fathom such a capital intensive mega acquisition at this juncture.
Hence, industry watchers agree with Zomato’s stand that the purported Shiprocket deal speculation holds no merit. The clarification provided by the company should put the matter to rest.
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About Shiprocket and State of Logistics Sector
However, there is merit in examining the traction achieved by e-logistics enablers like Shiprocket as well as the investment interest they are attracting. This mirrors the consumer shift towards online shopping and the vital role supply chain networks now play.
Shiprocket is a tech-enabled logistics aggregation platform that connects e-commerce sellers to multiple courier companies. This enables convenient shipping, tracking and monitoring of orders on a single interface.
The startup serves over 1 lakh online merchants including prominent digital brands like Myntra, Meesho, Unicommerce, Lenskart etc. It handles more than 2.5 million monthly orders averaging between Rs 13,000-15,000 per order.
Shiprocket has raised total funding of $130 million so far. The Series E round in 2021 led by $185 million from investors like Temasek Holdings and Lightrock India catapulted its valuation to over $1.2 billion.
The broader e-commerce focused logistics sector in India is also booming. As per estimates, the market which was worth $3.7 billion in 2020 could expand at a CAGR of 19% to touch $12 billion by 2025.
Besides Shiprocket, other major players like Delhivery, Ecom Express, XpressBees and ElasticRun are vying for a bigger slice of this rapidly evolving space.
Acquisition Attempts Cannot Be Ruled Out Altogether
Despite denying any ongoing talks with Shiprocket, some analysts feel Zomato could explore potential takeover opportunities in the logistics segment in future.
The need to control more aspects of the food delivery supply chain ecosystem could prompt Zomato to evaluate targets like Shiprocket. However, the company itself has asserted that there are no M&A plans on the table as of now.
Gurugram-headquartered Zomato went public in July 2021 and raised Rs 9,300 crore through India’s biggest IPO that year. With a current market cap exceeding Rs 1 lakh crore, it is one of India’s most valuable startups.
With this clarification, Zomato has managed the flaring up of acquisition rumors that could have temporarily distracted investor focus from its operational priorities. The company stock may continue exhibiting strong momentum heading into 2023 if execution of business plans stays on track.