Zomato shares deliver stellar returns on Day 1
Premium- Shares surge 65% on listing day; founder Deepinder Goyal turns billionaire
Mumbai: Zomato Ltd delivered sterling returns for investors, surging 65% in its stock market debut on Friday and turned its founder, Deepinder Goyal, into a billionaire.
The 13-year-old food delivery company ended trading at ₹125.85 on BSE, valuing the company at $13.3 billion. But, soon after its trading debut, Zomato’s market value soared past the ₹1 trillion mark, catapulting it to one of the 50 most valuable publicly traded firms in India, beating storied companies such as Mahindra and Mahindra, Tata Motors and Coal India Ltd.
The company’s shares opened trading at ₹116 on NSE, a 53% premium over the IPO price of ₹76, and then hit an intraday high of ₹138.90.
Zomato became the first major new-age Internet firm in India to trade publicly. A raft of Internet firms—many of them loss-making like Zomato—is set to go public soon as the disruptions caused by the pandemic prompted an unprecedented surge of people ordering food, buying groceries and making payments through apps.
At the close of trading, founder Goyal’s stake in the food delivery company was worth around ₹4,650 crore. Goyal holds 5.5% or 369.47 million shares in Zomato. He was also allotted 368.5 million options in April. If Goyal exercises the options, which vest over the next six years, his net worth will be worth $1.25 billion at Friday’s prices.
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In a blog post, Goyal thanked staff, investors and rival companies for contributing to Zomato’s success.
“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," Goyal wrote in a blog post on Friday. “I don’t know whether we will succeed or fail—we will surely, like always, give it our best," he said.
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The Zomato IPO was subscribed about 40 times last week. It received bids for 29.04 billion equity shares against an IPO size of 719.23 million equity shares. The IPO aimed to raise ₹9,375 crore. “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 startup ecosystem. We could see this trend continue in the upcoming IPOs, as the present market conditions are conducive for the primary market," said Naveen Kulkarni, chief investment officer, Axis Securities.
Others concur. Though the listing is much above expectations, current investors can hold on to their shares as this new business is forecast to grow at the high digit in the early stage of the cycle, said Vinod Nair, head of research at Geojit Financial Services. “New and 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 demonstrating improvement in profitability in the coming quarters. The company is expected to turn a profit soon; else, the stock performance will be impacted," Nair said.
Ahead of Zomato’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.
“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 our capital market," said S. Ramesh, managing director and CEO of Kotak Mahindra Capital Co.
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 narrowed significantly.
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