Finance professor had valued Zomato shares at CMP even before IPO listing
Premium- Aswath Damodaran: Zomato share price today made a new life-time low of ₹40.60 apiece on NSE, which is close to the valuation made by the finance professor
Zomato share price today made a new life-time low of ₹40.60 apiece on NSE. However, it would be interesting for the Zomato shareholders and market observers that stock valuation expert Aswath Damodaran had valued Zomato share price at ₹40.79 apiece on 22nd July 2021, just one day ahead of its share listing date i.e. 23rd July 2021.
Zomato shares: Valuation done ahead of IPO listing
As per the information available on the blog of finance professor dated 22nd July 2021, value of the equity offered was at ₹3,97,374.81 while value of equity options was at ₹73,244.53. Hence, net equity value of Zomato at the time of IPO launch was at ₹3,24,130.28. Total number of Zomato shares offered during the IPO launch were 7,94,668. Hence, net value of one Zomato share at the time of IPO launch comes at around ₹40.79, claims Aswath Damodaran in his blog.
Zomato share price: See full calculation below
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On risk profile involved in Zomato shares that the company itself accepted in its 30 pages RHP from page number 39 to 68, Aswath Damodaran wrote, "The risk profile starts with a statement that the company has a history of net losses and anticipates increased expenses in the future and goes on to add invaluable nuggets such as the "COVID-19 pandemic, or a similar public health hazard, has had an impact on the our business."
The finance professor further added, "I find it mind boggling that a company that is only thirteen years old has managed to accumulate as many subsidiaries, both in India and overseas, as Zomato has done. Since Zomato owns 100% of most of these subsidiaries, there may be legal or tax reasons for this structure, but there is no denying that it adds complexity (and pages) to the prospectus, with no real information benefits."
The blog also highlighted the grey part of the Zomato food platform user citing, "The users who joined the Zomato platform in 2017 were not only ordering three times more than they were initially by the time they had been on the platform four years, but were also more likely to continue ordering at those levels in the 2021 fiscal year, when COVID put a dent in the Indian food delivery business. This is good news, but to make full sense of it, it would have been informative to see what percent of each year's users stayed active on the platform in subsequent years, but I could not find that statistic in the prospectus."
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"With my upbeat story of growth and profitability, the value that I derive for equity is close to 394 billion INR (about $5.25 billion), translating into a value per share of 41 INR," Aswath Damodaran wrote.
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