Zomato unlikely to buy Shiprocket, deal could cause share to trade weak: Jefferies

Shiprocket is a B2B logistics-tech start-up that provides shipping and fulfillment services to direct-to-consumer (D2C) brands and omni-channel sellers.

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Though media reports say that Zomato has made an offer to buy B2B logistics start-up Shiprocket, the deal looks "unlikely" to Jefferies.

The brokerage has a buy call on the stock and sees even a 32 percent upside to its price.

A Bloomberg report said that Zomato had made an offer to acquire Indian e-commerce logistics start-up, Bigfoot Retail Solutions, better known by its brand, Shiprocket. The target valuation could be $2 billion, according to reports.

Also read: Zomato said to make takeover offer for closely held Shiprocket

In a December 21 report on the company, Jefferies' analysts Vivek Maheshwari, Jithin John and Kunal Shah said that they "ascribe a low probability of a deal at this stage" since the management has its hands full with its quick commerce business still in the ramp-up phase, and with balancing growth and margin a "key focus in food delivery".

As the analysts noted, Zomato already owns 5 percent of Shiprocket after its 2021 investment. According to them, if the acquisition goes through, Zomato's shares could trade "weak" since on the face of it this seems an unrelated acquisition even though quick commerce and hyperpure may have some linkages.

Shiprocket is a B2B logistics-tech start-up that provides shipping and fulfilment services to direct-to-consumer (D2C) brands and omnichannel sellers across categories such as apparel, electronics, beauty & personal care and grocery. It operates an asset-light model and has offerings across a customer's online journey, including discovery, order management, warehouse & fulfilment, shipping, order tracking and returns.

Also read: Zomato shares on investors' radar after Softbank exit

The analysts wrote, "Zomato has been acquisitive in the past (esp. in 2021) and made a few investments that were seemingly less relevant. The company also carries US$1.4bn on its books, with existing businesses not likely to require significant investment. With mgmt. mindset of growth, new lines of business, whether organic or otherwise is not ruled out. However, with Q/C requiring mgmt. bandwidth and food delivery still ramping up on profitability, we think management's hands are full. Hence, diversification seems very unlikely to us at this stage."