Listing of Zomato's IPO: Food delivery giant debuts at a soaring 66% premium with 125.85 in valuation

On BSE, the stock closed at Rs 125.85, up 65.59 percent from the issue price, while on NSE, the stock closed at Rs 125.30, up 64.87 percent from the issue price.

Zomato, India’s leading food delivery company, made a stellar debut on Dalal Street on July 23 as its stock opened at Rs. 116 on the NSE, a 52.63 percent premium to its final offer price of Rs. 76. There was a 51.32% increase in the listing price on the Bombay Stock Exchange.

Zomato ipo listing

In terms of BSE closing price, the stock closed at Rs 125.85, up 65.59 percent over its issue price, while in terms of NSE closing price, it closed at Rs 125.30, up 64.87 percent over its issue price. We have rated this IPO as “Subscribe with Caution” according to Choice Broking’s Rajnath Yadav, keeping in mind the long investment horizon required to invest in high-growth companies that are currently loss-making.

Our outlook for Zomato in the long run is positive. Retail investors who have the capacity to hold for a long period of time should hold on to their investment. On the other hand, investors with shorter time constraints should consider selling if listing gains are realized.

Following its listing at Rs 116 against a final offer price of Rs 76, the share price moved to Rs 138 intraday. The companies saw a healthy overall subscription of 38x despite the size of IPO at Rs 9,375 crore and rich valuations, said Sneha Poddar, Research Analyst, Broking & Distribution, Motilal Oswal Financial Services.

She said this company enjoys a couple of moats and that as its economies of scale took hold, losses reduced substantially. However, it’s a little tough to predict its growth trajectory at this point, but long term it looks good,”. After a stellar debut, the company’s market capitalization has surpassed Rs 1 lakh crore, standing at Rs 1,08,067.35 crore Dalal Street, racing ahead of IOC, BPCL, Shree Cements.

Investors responded with a stellar response to the Rs 9,375-crore initial public offering, which was open for subscription from July 14-16, with 38.25 times subscription – highest in the last 13 years among IPOs exceeding Rs 5,000 crore. Despite the rich valuations, the listing was largely in line with analysts’ expectations. Initial listing in the food delivery segment, positive market sentiment, healthy demand from investors, consistency in gaining market share, and expected improved financial performance resulting from the debut premium.

Zomato was formed in 2010, connecting customers, restaurants, and delivery partners through technology. In contrast, it provides restaurant partners with industry-specific marketing tools to engage and acquire customers in order to grow their business. The company also operates a one-stop online procurement platform, Hyper-pure, that supplies high quality ingredients and kitchen products to restaurant partners.

Besides its business-to-business (B2B) offering Hyperpure, it also offers two core business-to-customer (B2C) offerings – Food delivery and Dining-out. Another component of Zomato’s business is Zomato Pro, its customer loyalty program which includes both delivery and eating out services.

Zomato consistently gained market share over the last four years, becoming the category leader in India in terms of gross order value (GOV) between October 2020 and March 2021. The company generates most of its revenue from food delivery and commissions charged to its restaurant partners.

According to analysts, the FoodTech market in India is showing huge prospects and has attracted heavy investments. As a result, they believe India has been undergoing a revolution in the last few years.

Changes in lifestyle and eating habits, and growing disposable income in India are driving India’s online food delivery market, analysts say, adding that millennials and an increasing proportion of working women are also propelling online food delivery trends in India.

Analysts believe Zomato is tapping the same trends effectively. There were 3,89,932 active listings for restaurants in India as of March 2021, and Zomato also offered services in 23 countries outside India.

Inorganic and organic growth initiatives will be financed with net proceeds from the new issue. As a result, orders grew more than seven times from 3.06 billion in FY18 to 23.89 billion in FY21, while GOV grew 7.1x from Rs 1,334 billion to Rs 9,482.9 billion. After a 23.5 percent decline in revenues in FY21 (compared to Rs 2,604.7 crore in FY20), analysts expect growth to pick up sharply in FY22.

The loss declined to Rs (816.4) crore in FY21 from Rs (2,385.6) crore in FY20, while the earnings before interest, tax, depreciation, and amortization (EBITDA) loss dropped significantly year-after-year, to Rs (23.4) crore in FY21 from Rs (88.5) crore in FY20 and Rs (170.9) crore in FY19.

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