Zomato, one of the leading food services platforms in India in terms of value of food sold, will list on the bourses on July 23. Experts suggest the stock could list at a price of more than Rs 100 per share, i.e. more than 30 percent premium over final offer price of Rs 76.
The least amount of premium expected by them is 15 percent.
Despite the higher valuation, analysts expect a strong listing on the back of significant jump in grey market premium in last few days, positive market sentiment, earnings surprise by Jubilant Foodworks in Q1FY22, and the first mover advantage in the food delivery segment along with expected financial improvement.
The food delivery giant has preponed its listing date by two days to July 23. The scheduled listing date was July 27, as per prospectus filing.
The IPO share allotment has been finalised on July 22, and the process of refunds and transfer of shares is likely to get completed on the same day, given the preponing of share listing on July 23.
"We believe that improved market sentiment along with earnings surprise in Q1FY22 from Jubiliant Foodworks created positive impact on this sector. I agree with what grey market premium (GMP) is indicating. We expect IPO to open beyond Rs 100 which is quite reasonable listing for this venture," Gaurav Garg, Head of Research at CapitalVia Global Research told Moneycontrol.
Nikhil Shetty, Senior Research Analyst at BP Wealth feels despite pricing the IPO at an inflated valuation, there is a possibility of 25 percent listing gain, which translates to a listing price at Rs 95 per share.
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"Being the first mover in the segment and expected improved financial performance backed by under penetration in India, we are optimistic on the future growth prospect of the company," Shetty said.
Zomato shares traded at a premium of Rs 20-22 in the grey market, the unofficial platform for trading in IPO shares, the data available on IPO Watch and IPO Central showed. The grey market premium opens at the time of price band announcement, till the listing of shares on the bourses.
This resulted into a trading price of Rs 96-98 in the grey market, a 26-29 percent premium over issue price of Rs 76 per share.
Astha Jain, Senior Research Analyst at Hem Securities and Prashanth Tapse, VP Research at Mehta Equities expect Zomato to start the day with 20-25 percent and 25-28 percent premium respectively on Friday.
"With surprised investors' response from QIB & HNI on the last day of offer changed the grey market premium to Rs 21. Zomato has well planned to list it early looking at the recovery in the secondary markets which argues for a good listing gain candidate," said Prashanth Tapse, VP Research at Mehta Equities.
He further said, "Premium listing seems to be justified as the investors are keen to invest in India's 'FIRST OF ITS KIND' business which is gaining a lot of interest for a business model which is rapidly increasing footprints in online food businesses.
The Rs 9,375-crore public issue of Zomato was subscribed 38.25 times during July 14-16, the biggest subscription among IPOs of more than Rs 5,000 crore size each in last 13 years.
The qualified institutional investors provided healthy response to the issue as their reserved portion was subscribed 51.79 times, while that of non-institutional investors' portion saw subscription of 32.96 times and retail 7.45 times.
"The response from institutional investors has been strong. This suggests that the overall float available for trading might be limited leading to a higher GMP. We had issued a subscribe with caution rating for this IPO, keeping in mind the long investment horizon required for high growth companies that are currently loss making," said Rajnath Yadav, Research Analyst at Choice Broking.
Considering the grey market premium, Rajnath Yadav currently expects the stock to list at 15-20 percent premium to its allotment price. "Our outlook for zomato is positive in the long run as we believe that the company will find ways to improve their unit economics and diversify into new revenue streams. However we have concerns in the short term in regards to growth and valuation," he said.
Zomato has demonstrated a robust business growth, mainly due to increased penetration of its services. But its profitability was in red throughout the reported period, due to customer acquisition and advertising costs. The company reported a 23.2 percent CAGR growth in consolidated revenue over FY19-21 to stand at Rs 1,993.8 crore in FY21.
"Higher business was backed by multiple factors like greater engagement from existing customers, addition of new customers, penetration into new markets, relatively higher commissions and advertising incomes from its restaurant partners. Revenue growth in FY21 could have been higher, if the food services operations were not impacted by the Covid-19 pandemic," said Rajnath Yadav.
Consolidated EBITDA and PAT remained in red throughout the reported period, but the loss level declining significantly in FY21. It posted a loss of Rs 816.42 crore in FY21, loss Rs 2,385.6 crore in FY20 and loss Rs 1,010.5 crore in FY19.
Over FY19-21, Zomato reported negative cash flow from operating activities, with an average negative cash flow of Rs 1,635 crore.
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