India's leading food delivery company Zomato made a stellar debut on Dalal Street on July 23 as the stock opened at Rs 116 on the NSE, a 52.63 percent premium to its final offer price of Rs 76. The listing price on the Bombay Stock Exchange was at Rs 115, up 51.32 percent.
The stock closed at Rs 125.85 on BSE, up 65.59 percent with respect to the issue price, while on NSE, the stock closed at Rs 125.30, up 64.87 percent against the stock's issue price of Rs 76.
"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 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.
"For retail investors who have the capacity to hold for a long term, we would recommend they hold on to their investment. While investors with shorter time constraints can sell if they see listing gains. Our outlook for Zomato is positive in the long run," he added.
The share price moved to Rs 138 intraday after listing at Rs 116 against the final offer price of Rs 76.
"Despite the large size of IPO at Rs 9,375 crore and rich valuations, Zomato saw healthy overall subscription of 38x. There is lot of fancy for such unique and first of its kind listing in the market,' said Sneha Poddar, Research Analyst, Broking & Distribution, Motilal Oswal Financial Services.
"It enjoys couple of moats and with economics of scale started playing out, the losses have reduced substantially. Though, predicting the growth trajectory at this juncture is little tricky, but it’s a good bet from long term perspective,” she added.
The market capitalization of the company has crossed Rs 1 lakh crore mark, as it stood at Rs 1,08,067.35 crore after a stellar debut on Dalal Street, racing ahead of IOC, BPCL, Shree Cements.
Largely, the listing was in line with analysts' expectations despite rich valuations. First listing in the food delivery segment, positive market sentiment, healthy demand from investors, consistency in gaining market share, and expected improved financial performance attributed to the debut premium.
Also read: Zomato founder and CEO Deepinder Goyal: Today is a new Day Zero.
Incorporated in 2010, Zomato through its technology platform connects customers, restaurant partners and delivery partners, serving their multiple needs. On the other hand, it provides restaurant partners with industry-specific marketing tools which enable them to engage and acquire customers to grow their business. It also operates a one-stop procurement solution, Hyper-pure, which supplies high quality ingredients and kitchen products to restaurant partners.
It has two core business-to-customer (B2C) offerings – Food delivery, and Dining-out, in addition to its business-to-business (B2B) offering Hyperpure. Another part of its business is Zomato Pro, its customer loyalty program encompasses both food delivery and dining-out.
Zomato has consistently gained market share over the last four years to become the category leader in India in terms of gross order value (GOV) from October 2020 to March 2021. It generates a majority of its revenue from food delivery and the related commissions charged to its restaurant partners for using platform.
Analysts said the FoodTech market has shown huge prospects and attracted heavy investments as India online food delivery market. Hence they believe India is going through a revolutionary phase in the last few quarters.
Factors propelling India's online food delivery market are changing lifestyle and eating habits, and hectic schedule and growing disposable income in India pushes people towards ready-to-eat food at a discounted rate, analysts said, adding rising digitalization among millennials and increasing proportion of working women in India are also driving the online food delivery trends in India.
Zomato is taping the same trends effectively, analysts feel.
As of March 2021, Zomato was present in 525 cities in India, with 3,89,932 active restaurant listings along with presence in 23 countries outside India.
The food delivery giant is going to utilise net proceeds from fresh issue for funding organic and inorganic growth initiatives.
The company's orders grew by 7.8x from 3.06 crore in FY18 to 23.89 crore in FY21 and its GOV grew 7.1x from Rs 1,334 crore in FY18 to Rs 9,482.9 crore in FY21.
Post a 23.5 percent decline in revenues in FY21 to Rs 1,993.8 crore (compared to Rs 2,604.7 crore in FY20) due to the Covid-19 pandemic, analysts expect growth to pick up sharply from FY22.
The loss declined to Rs (816.4) crore in FY21 from Rs (2,385.6) crore in FY20, while the earnings before interest, tax, depreciation and amortisation (EBITDA) loss dropped significantly year-after-year, to Rs (23.4) crore in FY21 from Rs (88.5) crore in FY20 and Rs (170.9) crore in FY19.
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