Zomato, the food delivery major, debuted with a listing premium of more than 50 percent on July 23, making it the 13th IPO since 2020 to record listing gains of more than 50 percent in the opening tick.
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.
Until 12.30 pm, Zomato had hit an intraday high of Rs 138 that pushed its market-capitalisation to more than Rs 100,000-crore, making it the 46th stock in the list of 50 most valued counters. The other names that have a m-cap of Rs 100,000 crore-Rs 200,000 crore include IOC, Tata Motors, Shree Cements, Dabur, Tech Mahindra and Bajaj Auto.
The startup briefly breached the market-cap of some prominent Nifty50 names like IOC and Tata Motors but cooled off towards the mid-morning trade. Zomato surpassed the market-cap of Info Edge in the opening tick, which holds a 15 percent stake in the unicorn.
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“One of the most awaited and much-talked-about initial public offering (IPO) in recent times. At a fantastic market capitalisation of over 1 lakh crore, Zomato is backed by Sanjiv Bhikchandani-led Info Edge India Group. The IPO made a fantastic entry, with a bumper listing up by 73 percent,” Kapil Goenka, Director at CM Goenka Stock Brokers, said.
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The listing was in line with analysts' expectations despite rich valuations. Zomato marks one of the first listings in the food delivery segment in India and a good start for the tech-based startup universe.
Buy, sell or hold?
The big question for investors now is what should they do–book profits in case they got an allotment. For those who missed the allotment, should they buy in the secondary market?
Experts feel that the ones who got the allotment can look at booking profits and the ones who were not that fortunate can buy the stock on dips from a long-term perspective.
“For the investors who are looking to gain from this IPO, Zomato might prove a gem. Moreover, in the backdrop of the coronavirus pandemic, Zomato IPO and enthusiasm around this has undoubtedly boosted the investors’ confidence in the IPO market,” Goenka said.
“However, we advise that successful allottees must book full profit and must wait for some time to buy again,” he added.
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 the last 13 years.
The food delivery giant is going to utilise the net proceeds from the fresh issues 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.
Despite the near-term challenges, Zomato has a lot of potentials and some experts feel that it could be part of the Nifty50 amid high free-float market capitalisation.
“Few largecap internet platform companies like Zomato with high free float market cap due to zero promoter holdings could be serious contenders for entry into the benchmark indices going ahead,” ICICI Securities said in a report.
Over FY19-21, Zomato reported negative cash flow from operating activities, with an average negative cash flow of Rs 1,635 crore. But the online food delivery business is on the cusp of evolution.
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.
“There is a lot of fancy for such unique and first of its kind listing in the market. Zomato with first-mover advantage is placed in a sweet spot as the online food delivery market is at the cusp of evolution,” Sneha Poddar, Research Analyst, Broking & Distribution, Motilal Oswal Financial Services, said.
“It has consistently gained market share over the last four years to become the category leader in India in terms of GOV (Gross Order Value). It enjoys a couple of moats and with the economics of scale started playing out, the losses have reduced substantially. Though predicting the growth trajectory at this juncture is a little tricky but it’s a good bet from long-term perspective,” added Poddar.
Here are reactions from other experts as to what investors should do post-Zomato listing:
Naveen Kulkarni, Chief Investment Officer, Axis Securities: Trend to continue
Zomato debuted in the Indian market with a strong listing gain of more than 50 percent. The stock price has further jumped to 138 after a strong listing, making a debut to a club of one lac crore of market cap.
This signifies a strong risk appetite for the new and next-generation business models. The listing performance will provide a positive signal to the Indian start-up ecosystem.
We could see this trend to continue in the upcoming IPOs, as the present market conditions are conducive for the primary market.
Astha Jain, Senior Research Analyst, Hem Securities: Book Profits
We expect Zomato to list at almost 20-25 percent premium to issue price on listing day. We recommend to book partial profit stock trade at more than 25-30 percent premium to issue price on the listing day and recommend to keep remaining allotment for the long term.
The company is consistently gaining market share over the last four years to become the category leader in the food delivery space in India in terms of GOV.
We believe that going forward, funds deployment towards customer and user acquisition & retention expanding delivery and technology infrastructure will increase the growth prospects of the company and thus make it a candidate for long-term investment.
Prashanth Tapse, VP Research, Mehta Equities: Book profits on listing
I believe risk-takers can consider holding for it a long way while conservative allotted investors should look to book healthy profits on listing day and if non-allotted investors wish to buy on a listing day it is better to wait and watch the performance and then accumulate on better price range.
Rajnath Yadav, Research Analyst, Choice Broking: Hold/sell if allotted
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.
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.
Gaurav Garg, Head, Research, CapitalVia Global Research Ltd: Long-term investors can hold
We believe that better market sentiments along with surprising earnings in Q1FY22 from Jubilant FoodWorks has created a positive impact on this sector. We expect IPO to open beyond Rs 100 which is quite a reasonable listing for this venture.
Long-term investors should hold this issue for at least two-three years. However, investors who are looking for listing gains can go ahead and book half of the holdings and can wait with the rest of the quantity for a slightly long term.
Nikhil Shetty, Sr Research Analyst, BP Wealth: Long-term bet
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.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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