Zomato makes stellar debut, mcap hits over ₹1 trillion on day one
Premium- Zomato's market capitalization is higher compared to some index companies like Mahindra & Mahindra, Eicher Motors, Coal India and Tata Motors
Mumbai: Shares of food delivery service platform Zomato, the first major new age Indian technology company to hit the stock markets, made a stellar debut on Friday with the stock closing Rs125.30 on the NSE, rising 64.86% over its issue price of Rs76. The food delivery unicorn had opened trading at ₹116, a 52.63% premium over issue price.
During the day, the stock hit a high of ₹138.90 and low of ₹115 a piece. Soon after listing, its market capitalisation hit over ₹1 trillion, catapulting it to one of the top 50 most valuable publicly traded firms in India.
Zomato's market capitalization is higher compared to some index companies like Mahindra & Mahindra, Eicher Motors, Coal India and Tata Motors. With a market cap of ₹13.34 trillion Reliance Industries Ltd is the most valuable company in India, followed by Tata Consultancy Services Ltd (TCS) and HDFC Bank Ltd.
At closing founder Deepinder Goyal’s stake in the food delivery platform was worth roughly around Rs4,650 crore. Goyal holds 5.5% or 369.47 million shares in Zomato.
“We are going to relentlessly focus on 10 years out and beyond and are not going to alter our course for short term profits at the cost of long-term success of the company. The tremendous response to our IPO gives us the confidence that the world is full of investors who appreciate the magnitude of investments we are making, and take a long-term view of our business," said Goyal in a blogpost on Friday.
The much hyped initial public offer (IPO) of Zomato was subscribed 40.38 times last week. The offer received bids for 29.04 billion equity shares against IPO size of 719.23 million equity shares. The IPO, which aimed to raise ₹9,375 crore at the top of the price band of ₹72-76, opened for subscription on 14 July.
Naveen Kulkarni, Chief Investment Officer, Axis Securities said, "Zomato listing signifies a strong risk appetite for the new and next generation business models. Today’s listing performance will provide a positive signal to the Indian start-up ecosystem. We could see this trend to continue in the upcoming IPOs, as the present market conditions are conducive for the primary market"
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Others concur. According to Vinod Nair, Head of Research at Geojit Financial Services though the listing is much above the expectations, current investors can hold on to their shares as this new business is forecasted to growth at the high digit in the early stage of the cycle. “For new & existing investors, can accumulate on a short to medium-term basis, as the trend of stock price stabilizes. A key factor for the stock price to sustain this euphoria is to demonstrate improvement in profitability in the coming quarters. The company is highly expected to turn into profit from current lose, else the performance will be impacted," Nair said.
Ahead of Zomato Ltd’s IPO analysts were optimistic about listing gains, but were cautious about the company’s long-term risks. The expensive valuation demanded at a time the food delivery service is still making losses and upcoming competition with Amazon’s entry into the segment are making analysts wary. Zomato operates in a duopoly—the other player being Swiggy—and has created strong entry barriers with a widespread network. It operates in a highly under-penetrated market where of the total food consumption in India, only 8-9% is from restaurants, of which only 8% is online food delivery.
S Ramesh, Managing Director and CEO, Kotak Mahindra Capital Company, said, “The stellar debut of Zomato on the domestic bourse after attracting robust subscription is a testimony to the fact that investors are willing to bet big on new-age technology companies which have the characteristics of a disruptive business model. It is also a tribute to Indian entrepreneurship. With growing internet penetration and the number of smartphone user base increasing month after month, the entire private digital ecosystem will enable wealth creation and further deepen of our capital market in the coming years."
Zomato is yet to turn profitable. Over FY18-21, the company grew its revenue at a compound annual growth rate of 62%. While business is at a nascent stage and began gaining traction since FY18, Ebitda losses have come down significantly. In FY21, Zomato recorded 32.1 million average monthly active users, of which 6.8 million MTUs (monthly transacting users) placed transactions. It is present in 525 cities in India, with almost 150,000 active food delivery restaurant listings and 170,000 active delivery partners at the end of FY21.
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