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Is Zomato’s bumper listing making way for upcoming IPOs?

There are many other new age companies who may come up with their IPOs in coming months and Zomato's bumper listing would definitely give them confidence.

July 25, 2021 / 03:42 PM IST
 
 
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Zomato IPO created a lot of buzz on the street, there was a lot of participation from the investors which was evident by the subscription, the issue was subscribed around 38.25 times and the allotment price was Rs.76 per share. The share got listed on July 23, 2021 in the secondary market amidst huge fanfare and with a listing gain of 53 percent on NSE and 51.52 percent in BSE. The IPO size was quite large and also with rich valuation, but still it managed to list with stellar listing gains and has been quite popular among the investors.

There have been quite a few brow raisers in the issue such as the loss making balance sheet, cut throat competition between Zomato and Swiggy ( discount led operations) but still the issue price worked out to be Rs 76 which seems to be at a premium as per P/S (Price/ Sales) amounting to 29 times which is high compared to its global peers, the Company managed to create a buzz about the IPO as compared to previous issues which led to curiosity and craze on the street and thus it could see such participation on both retail and institutional front.

The listing of Zomato IPO is very much expected set tone for the upcoming IPOs. This issue is also expected to encourage many new age companies like these to enter the markets, the conditions seem favourable for new issues and healthy listings and Zomato has definitely set a precedent, this issue was issued at a premium but still it managed to list with good gains which shows the interest in the street and the markets, it is expected to reinforce IPO market with positive listings going on. The role of Domestic Institutional investors cannot be denied, this IPO may turn out to be a multi bagger stock provided one waits, therefore this seems to be a good bet for Institutions. SBI Mutual Fund, Aditya Birla Sun Life Insurance, HDFC Mutual Fund were prominent Anchor Investors.

It is important to note that the IPO (Zomato’s) received stellar response despite the fact the company is not making profits and will not be able to do so for at least 2 more financial years. However, market has given it such a high valuation considering the exponential growth opportunities that the company can tap as compared to other brick and mortar based players. Hence, this event sets a very strong precedent for other similar companies to come up with IPOs. Companies like PayTM, Mobikwik, Policy Bazaar etc. are lined up to issue their shares to public and we might see a fast-track progress on this front in times to come.

Also read - How does Zomato listing stack up with global food delivery peers?

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The market seems well disposed towards the IPOs and from FY21 only a few issues underperformed whereas most of the issues delivered health listing gains, in such a positively disposed market the Zomato IPO has sort of confirmed the mood of the market. Other factors such as the lower interest rates which will lead to lower cost of capital and thereby increase valuations, the increase in the liquidity on the street has increased the investing capacity of investors (retail and institutional alike).

Therefore, after Zomato’s listing one can expect positive listings in upcoming issues owing to the positivity in the markets and the factors discussed above.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Gaurav Garg is Head - Research & HCM at CapitalVia Global Research Limited- Investment Advisor. He has done Masters in Personnel Management and Industrial Relations (PMIR) from XLRI and B Tech from NIT.
first published: Jul 25, 2021 03:42 pm

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