Subscribe to Zomato: YES Securities

YES Securities IPO report on Zomato

We see a lot of excitement around the Zomato IPO given it’s the first large consumer tech company getting listed. Key players in the food tech industry like Zomato and Swiggy and have been able to create multiple competitive advantages like last‐mile delivery infrastructure, customer data, strong brand and convenience/choice driving network effect. While the metros and Tier 1 opportunity has been well captured, there is enough potential in the Tier 2,3,4 cities. We expect better trends in customer adoption and ordering frequency given efforts in changing health perceptions on food ordering, while demographics remain favorable. The COVID pandemic has impacted revenues but improved unit economics which could be difficult to sustain going forward. While clarity is still awaited on use of IPO proceeds on M&A, it could be a combination of foray into grocery, dark kitchens, nutraceuticals etc. While we see strong investor interest despite punchy valuations at 25x FY21 EV/sales given the uniqueness of the business model, the path to profitability is still not clear. While growth potential and a cash rich balance sheet offer immense growth potential, its difficult to value the stock on conventional parameters.

Valuation and Outlook

Hence, we would advise to subscribe for listing gains only and would wait to see multiple legs of the story unfold before coming up with a more nuanced fundamental view.

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