Zomato Shares Dip 5% Over GST Order of ₹400 Crore

By Shehnaz Shaikh
December 13, 2024

Shares of Zomato have declined by 5% in the last five trading sessions following the issuance of a GST order worth ₹401 crore. The stock fell to an intra-day low of ₹282.80 but remains resilient with long-term gains.

Details of the GST Order

• Amount in Dispute: ₹401.7 crore
• Assessment Period: October 29, 2019, to March 31, 2022
• Authority: Joint Commissioner of CGST & Central Excise, Thane Commissionerate, Maharashtra
• Company’s Response: Zomato plans to file an appeal, asserting a strong case supported by legal and tax advisors.
  

  “We believe we have a strong case on merits which is backed by opinions from our external legal and tax advisors,” Zomato stated in its filing.

Key Details:

1. GST Order Impact:
   • The tax department has flagged inconsistencies in Zomato‘s compliance, focusing on its commission structure and input tax credit claims.
   • Zomato is expected to challenge the order, stating that all tax-related operations are compliant with regulatory norms.
2. Stock Performance:
   • The share price dropped by 5% in early trading, reflecting investor concerns about the financial implications of the order.
   • The dip adds to the volatility in the stock, which has been fluctuating amid market uncertainties.
3. Company Response:
   • Zomato has released a statement clarifying its stance, asserting that the issue stems from a difference in tax interpretations.
   • It aims to engage with the authorities to resolve the matter amicably.
4. Market Sentiment:
   • Analysts suggest the tax demand could temporarily affect Zomato’s financials, but its long-term growth prospects remain strong.
   • The company’s ability to manage this regulatory challenge will be critical in restoring investor confidence.

Zomato’s Financial Performance

• Net Profit (Q2 FY25): ₹176 crore, up from ₹36 crore in Q2 FY24
• Revenue from Operations: ₹4,799 crore, a growth of 69% year-over-year

Stock Performance

• Recent Movement:
  • 5-Day Loss: -5%
  • 1-Month Return: +11%
  • 6-Month Return: +55%
  • Year-to-Date: +130%
  • 1-Year Return: +139%
• Comparison with Nifty 50:
  • 5-Day Loss: Nifty fell by 1.13%
  • 1-Month Gain: Nifty rose by 3.5%
  • 1-Year Return: Nifty gained 16.5%

Impact of the GST Order

The GST demand has raised concerns among investors, causing short-term pressure on Zomato’s stock. However, the company’s robust financial performance and long-term returns suggest potential for recovery once legal proceedings are resolved.

FAQs

1. Why has Zomato received a GST demand?
Zomato received a GST order for ₹401 crore based on assessments for the period between October 2019 and March 2022. The tax demand is related to input tax discrepancies, according to the Joint Commissioner of CGST & Central Excise.

2. How is Zomato responding to the GST order?
Zomato plans to file an appeal, claiming they have a strong case supported by legal and tax advisors. The company is confident of resolving the issue favorably.

3. What impact has this news had on Zomato’s stock price?
The stock fell 5% in the past five days, reflecting investor concern over the GST order. However, Zomato has demonstrated strong long-term returns, gaining 130% year-to-date.

4. Is this the first legal challenge Zomato has faced?
While Zomato has dealt with regulatory issues in the past, this ₹401 crore GST order is one of the larger financial demands recently.

5. Should investors be worried?
The GST dispute is a short-term concern, but Zomato’s robust financial performance and market dominance suggest that the company remains a solid long-term investment.

Conclusion

The ₹401 crore GST order poses a temporary setback for Zomato, as reflected in the recent decline in its stock price. However, the company’s strong financial results, market growth, and proactive approach to addressing the tax dispute provide confidence to long-term investors. While the near-term volatility may persist, Zomato’s resilience and growth trajectory make it a company to watch closely.

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