Zomato, the country’s first internet unicorn to tap the capital markets, ended with a 66 per cent gain on its stock market debut on Friday amid a buying frenzy. The stock rose as much as 83 per cent to Rs 139 before giving up some gains to settle at Rs 126 – 66 per cent, or Rs 50, higher than the issue price of Rs 76 per share.
The company’s market valuation went past the Rs 1-trillion mark during the day. At the closing price, the online food delivery company was valued at Rs 98,732 crore ($13.3 billion), making it 48th most-valued firm in the country.
The stellar gains follow Zomato’s hugely successful Rs 9,375-crore initial public offering (IPO), which had generated bids worth Rs 2.1 trillion. Market players said several large institutional investors that didn’t get adequate allotment in the IPO bought the shares from the secondary market.
Investors showed little concern about its valuation. Zomato is now the most expensive consumer and food company in India, valued at 50 times its FY21 net sales of Rs 1,994 crore.
For comparison, Jubilant Foodworks, which operates Domino’s pizza chain in India, is trading at 14.2 times its net sales in FY21. In the fast-moving consumer goods (FMCG) space, the industry leader Hindustan Unilever is trading at 12 times its FY21 sales, while Nestle India is valued at 13.1 times its CY20 revenues. On average, the top 10 food and FMCG companies are currently trading at 8.8 times their latest annual net sales.
Zomato is also more richly valued than global food delivery peers such as China’s Meituan (valued at 13 times CY20 revenues), USA’s DoorDash (21 times), and UK’s Deliveroo (five times).
Some analysts justify Zomato’s premium valuation to its potential to grow faster than established food and FMCG companies.
The company’s net sales were up nearly 33 times between FY15 and FY20. Its net sales grew at a compounded annual growth rate (CAGR) of 101 per cent from Rs 79 crore in FY15 to Rs 2,560.4 crore in FY20. Zomato’s net sales were, however, down 23.5 per cent in FY21 to Rs 1994 crore. It remains a loss- making company and reported a net loss of Rs 813 crore in the last fiscal.
“Zomato with the first mover advantage is placed in a sweet spot as the online food delivery market is at the cusp of evolution. It has consistently gained market share over the last four years to become the category leader in India in terms of gross order value. It enjoys a couple of moats and with economies of scale started playing out, the losses have reduced substantially. Predicting the growth trajectory at this juncture is a little tricky, but it’s a good bet from a long-term perspective,” said Sneha Poddar, an analyst at Motilal Oswal.
Shares worth Rs 9,200 crore changed hands on Friday, more than Rs 5,180 crore sold in the IPO. Zomato had allotted Rs 4,195 crore worth of shares to anchor investors, which included over 180 marquee institutional investors. Shares allotted to them are locked in for a month.
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