Zomato IPO opens tomorrow — and even analysts are confused
- Zomato will open its IPO between July 14-16, at a price band of ₹72-76.
- The company will have a cash reserve of ₹15,000 crore post issue.
- However, a few analysts believe that it’s not the right call for retail investors.
Zomato will open its IPO on Wednesday, July 14, at a price band of ₹72-76 and it is definitely something to keep a track of. This is the biggest public issue in the Indian startup ecosystem to date, well at least till the time payments firm Paytm hits the public market with its $3 billion issue.
TOP VIDEOS FOR YOU
The Gurugram-based startup, which was founded in 2008 by Deepinder Goyal and Pankaj Chhadah (exited in 2018), plans to use this capital raise for organic growth, inorganic growth and general corporate purposes. The inorganic growth will include mergers and acquisitions (M&A) as well as investment in tech and customer acquisition.
Zomato will have a cash level of ₹15,000 crore or close to $2 billion post-issue, the company’s chief financial officer Akshant Goyal and co-founder Gaurav Gupta said in a press conference held on July 8, 2021. Stock broking firm Ventura Securities believes that this cash pile should easily help the company sustain burn-rates for a good 7-9 years.
The company’s valuation may seem optically demanding at the upper price band of ₹76, Venture Securities says. However, it has recommended subscribing to the public issue due to several reasons — evolving nature of the business, duopoly market (market with only two players), immense potential to penetrate into market, humongous untapped online opportunity in other vertices such groceries, food delivery and more, and scarcity of premium to use services.
However, there have been many mixed reviews from the stockbroking firms.
|Motilal Oswal||Investor with high risk appetite can subscribe|
|Choice Broking||Subscribe with caution|
|Alchemy Capital Management||Subscribe, but allocate very small amount|
|Kotak Securities||Not Rated|
|Axis Securities||Not Rated|
|JST Investments||Not Rated|
Motilal Oswal says that Zomato is placed at a sweet spot as the online food delivery market is at the cusp of evolution, but predicting the growth trajectory at this juncture is a little tricky for the next few years. Valuing such early-stage businesses on a plain vanilla financial matrix might not give the right picture and may look distorted, the brokerage adds.
Deven Choksey, promoter of KRChoksey Group and MD of KRChoksey Shares and Securities, tells Business Insider that this business has a particular level of being scaled up to a larger level. “They started with the food aggregator business, then they started getting into the restaurants, then into the loyalty programme [Zomato Pro], and now they are getting into the grocery business. One after another areas [sic], which they can manage, they are getting into it. This is the beauty of this particular business. Its success is largely because they keep on reinventing themselves,” he adds.
Meanwhile, Hiren Ved of Alchemy Capital Management, says, “These businesses, being in their early growth stage, keep pivoting their business models often. So valuing these businesses during and immediately after the IPO is a big challenge. Ved is the cofounder, director and CEO of Alchemy Capital Management.
Apprehension and risks in Zomato IPO, according to analysts
- Zomato has a history of net losses and anticipates increased expenses in the future.
- It may not be able to sustain historical growth rates going forward.
- The COVID-19 pandemic, or a similar public health threat, has had an impact and could further impact the business, cash flows, and financial condition of the company.
- Failing to retain existing restaurant partners, customers or delivery partners or failing to add new restaurant partners, delivery partners or customers, may have an adverse impact on the business.
- It is difficult for an average investor to understand the company’s valuation in the traditional sense.
SoftBank-Swiggy deal gets CCI approval, two days before Zomato IPO
Payments firm MobiKwik files for ₹1,900 crore IPO, reportedly to seek $1 billion valuation
Reliance Jio picks up serious pace, adds nine times more subscribers than Airtel in April – Vodafone Idea continues its downward spiral
- India’s largest home loan provider HDFC has given real estate stocks another reason to rally
- India’s Covaxin effective against Delta Plus variant of COVID-19, reveals ICMR study
- China’s crackdown on cryptocurrency trading will continue as its central bank raises the heat on financial institutions
- COVID-19 is back in Wuhan and many other parts of China that have been ‘virus free’ for months
- Fevicol bonds with 100+ brands on Friendship Day by becoming the stickiest comment on the internet