During the Moneycontrol Masterclass held on July 30, 2021, we explored how retail investors should approach Internet IPOs after the stupendous success of Zomato’s listing. Moneycontrol spoke to market experts Shankar Sharma, co-founder and vice-chairman, First Global, and Nilesh Shah, managing director of Kotak Mutual Fund (MF) on the challenges in valuing such businesses.
Veterans, yet learning
“We are also learning as we are investing. We need to find a way to value a digital asset, like we value a physical asset,” Shah said.
Sharma said being a loss-making company is not a problem as long as there is a path to profitability. “The problem is that these business models are not inherently innovative,” he said.
He added that in such businesses, when you cut losses, you take a hit on your topline growth. “The challenge for these businesses is whether they can grow without freebies and discounts like normal businesses,” Sharma said.
Shah said investors looking to get into such IPOs can look at the balance-sheet of the company, quality of the management and when there is no profit, they can look at the long-term potential of the platform.
“There can be a difference of opinion on when the business will become profitable, whether in five years or 10 years. One view can be that since investors are losing money in the Chinese tech space due to regulatory concerns, the capital from there might shift to Indian start-ups,” Shah said.
Kotak MF was among the several domestic mutual funds that had invested in the anchor book of the Rs 9,375 crore Zomato IPO.
Sharma cautioned that regulatory worries cannot be ruled out in India either. “In China, they are tightening regulations on education to control education costs of for its citizens, which has impacted ed tech start-ups there. In India too, government can regulate sectors or businesses, where it is of the view that citizens’ interests need to be favoured,” Sharma said.
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