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Zomato shares up nearly 7% as analysts project bigger order volumes

·2-min read
Illustration picture of Indian food delivery company Zomato

BENGALURU (Reuters) - Shares of India's Zomato surged nearly 7% on Wednesday after several analysts projected higher profits in the near term, recovering some losses from a sharp drop in their value after a share lock-in period ended this week.

Ant Group-backed Zomato made a strong debut on the Mumbai market last year, but concerns about its valuation have brought down its market value by about 68% since then.

"We believe its next phase of growth will be driven by higher ordering frequency from its existing user base," analysts at Credit Suisse said, adding that low reliance on new customers will minimize customer acquisition costs.

On Tuesday, analysts at Jefferies said the stock makes a great case for long term investors to buy, while J.P.Morgan said the company could also see a decrease in cash burn rates.

Some investors, however, cast doubts over Zomato's profit run as it absorbs its recent acquisition of local grocery delivery service Blinkit and competes with SoftBank-backed Swiggy.

"The bigger issue of capital allocation discipline is something that is a concern for us," said Keyur Majmudar, a managing partner at India's Bay Capital.

In June, Zomato said it would buy Blinkit, aiming to improve market share in the "quick-delivery" business, which aims to deliver groceries and other daily essentials to customers within a few minutes of ordering.

"They have capital committed to quick commerce, which is going to bleed given the nature of that business and the competitive intensity," Majmudar said, referring to the Blinkit deal.

Shares of Zomato, which is scheduled to report its first-quarter results on Aug. 1, were up 3.2% by 0748 GMT at 43.8 rupees after rising as much as 6.6% in the morning.

($1 = 79.8980 Indian rupees)

(Reporting by Meenakshi Maidas in Bengaluru; Additional reporting by Abhirup Roy in Mumbai; Editing by Neha Arora)