Zomato shares offer exceptional returns on day one
Mumbai: Zomato Ltd generated returns in pounds sterling for investors, jumping 65% when it debuted on Friday and made its founder, Deepinder Goyal, a billionaire.
The 13-year-old food delivery business ended its operations in ₹125.85 on BSE, valuing the company at $ 13.3 billion. But, shortly after its commercial debut, Zomato’s market value soared beyond the ₹$ 1,000 billion, catapulting it into one of India’s 50 most valuable publicly traded companies, beating historic companies such as Mahindra and Mahindra, Tata Motors and Coal India Ltd.
The company’s shares opened for trading at ₹116 on NSE, a premium of 53% over the IPO price of ₹76, then hit an intraday high of ₹138.90.
Zomato became the first large new age internet company in India to go public. A slew of internet businesses – many of which are loss-making like Zomato – are expected to go public as soon as disruption from the pandemic sparked an unprecedented wave of people ordering food, shopping for groceries and making payments through apps. .
At the close of the stock exchange, founder Goyal’s stake in the food delivery company was worth approximately ₹4,650 crores. Goyal owns 5.5% or 369.47 million shares of Zomato. He was also awarded 368.5 million options in April. If Goyal exercises the options, which will vest over the next six years, his net worth will be worth $ 1.25 billion at Friday’s prices.
In a blog post, Goyal thanked staff, investors and rival companies for contributing to Zomato’s success.
“The huge response to our IPO gives us confidence that the world is full of investors who appreciate the scale of the investments we make and have a long-term view of our business,” Goyal wrote in a blog post on Friday. “I don’t know if we will succeed or fail, we will surely, as always, do our best,” he said.
Zomato’s IPO was underwritten about 40 times last week. It received offers for 29.04 billion shares against an IPO size of 719.23 million shares. The IPO aimed to increase ₹9,375 crores. “Zomato’s listing signifies a strong risk appetite for next-generation and next-generation business models. Today’s listing performance will provide a positive signal to the Indian startup ecosystem. We may see this trend continue in future IPOs as the current market conditions are conducive to the primary market, ”said Naveen Kulkarni, Chief Investment Officer, Axis Securities.
Others agree. Although the listing is well above expectations, current investors can hold onto their stocks as this new business is expected to grow at a high figure early in the cycle, said Vinod Nair, head of research at Geojit Financial Services. “New and existing investors can accumulate in the short to medium term, as the trend in stock prices stabilizes. A key factor for the share price to maintain this euphoria is the demonstration of improving profitability over the next few quarters. The company should soon turn a profit; otherwise, the performance of the stocks will be impacted, ”said Nair.
Prior to Zomato’s IPO, analysts were bullish on listing gains but were cautious about the company’s long-term risks. The costly valuation demanded at a time when the food delivery service is still recording losses and the competition ahead with Amazon’s entry into the segment makes analysts suspicious. Zomato operates in a duopoly – the other player being Swiggy – and has created strong barriers to entry with an extensive network. It operates in a heavily under-penetrated market where of total food consumption in India, only 8-9% comes from restaurants, of which only 8% are online food deliveries.
“With the increasing penetration of the internet and the increase in the number of smartphone users 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 has not yet become profitable. During fiscal year 18-21, the company increased its sales at a compound annual growth rate of 62%. While business is in its infancy and has started to gain ground since fiscal 2018, EBITDA’s losses have narrowed significantly.
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