Zomato down 5% on reports of CCI investigation against unfair trade practices

Zomato shares fell to Rs 82.15 on the Bahrain Stock Exchange on Tuesday on the back of large volume following reports that the Competition Commission (CCI) on Monday ordered a detailed investigation against food delivery platforms, Zomato and Swiggy, over alleged unfair business practices in relation to their dealings with Restaurant partners.

The stock of the food delivery company reached a record low of Rs 75.55 crore on March 16, 2022. The stock hit a record high of Rs 169.10 on November 16, 2021. Zomato raised Rs 9,375 crore through initial public offering (IPO) by issuing shares at a price of 76 rupees per share.

The counter saw a huge trading volume of about 9 million shares on the NSE and BSE exchanges in the first half hour of trading. At 09:47 am Zomato was down 3 per cent at Rs 83.80, against a 0.5 per cent drop in the S&P BSE Sensex.

according to PTI In the report, CCI’s order comes months after the National Restaurant Association of India (NRAI) asked CCI to investigate companies for breaching platform neutrality by prioritizing exclusive contractors.

The regulator said that “at first blush there is a conflict of interest situation, which warrants detailed scrutiny of its impact on the overall competition between regional firms versus private brands/entities that platforms may be incentivized to favor.” Click here for the full report

In the past three months, Zomato has underperformed the market by dropping nearly 40 percent, compared to a 0.4 percent rise in the S&P BSE Sensex Index.

Zomato is a leading Indian food technology company, with a market share of around 50 percent. It started as a platform for finding and discovering restaurants, but then ventured into food delivery. Zomato also owns a takeout business, a Pro subscription business, and a B2B Hyperpure grocery.

An analyst at JP Morgan has an “overweight” rating on the stock for four reasons. The brokerage expects average order value (AOV) to be sustainable over the medium term due to the low percentage of premium restaurants.

“We see a decrease in discounts from Zomato as discounts become increasingly funded by merchants due to the increased platform strength; sustainable AOV combined with reduced discounts should result in higher contribution margins; and we see strong long-term growth driven by penetration and some increase in iterations between groups current share, with Zomato retaining its current share of the food delivery industry with the opportunity to build a rapid grocery practice that can scale TAM,” JPMorgan said in a March 24, 2022 report.

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Outlook: Caution

Subsidy: 76 rupees

After a massive collapse in Zomato stock on January 24 this year, the shares have been trading in a narrow range since February 21. Although the stock formed a bullish Harami candlestick pattern on the daily charts on April 1st, it was unable to trade higher due to trend line resistance at Rs.88. On the downside, near-term support remains at Rs.81, which is the 20-day moving average (DMA). After that, the next support is at the level of Rs 76.

The stock’s price-to-moving averages continues to favor a negative bias on the daily charts with the 20-DMA below the 50-DMA, and the 50-DMA below the 100-DMA.

However, the stock appears to be trying to regain some of its lost gains, with key momentum indicators such as the RSI outlining, suggesting there is room for an upside. Moreover, the MACD line is trying to cross the zero line. If that happens, the market bulls may gain some control of the stock and may take it to the Rs 107 level, which is the 20-week moving average (WMA).

However, the trend oscillator and the slow stochastic are indicating that it will be a struggle between the bulls and the bears in the near term.

(Input from Nikita Vashcht)

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