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House of cards: The likes of Zomato, Paytm have eroded Rs 3 lakh crore from their peak valuations

Consumer tech companies hit the stock market last year with the promise of representing the future of Indian business. The narrative was lapped up by investors, and some of these names turned multi-baggers before crumbling

July 27, 2022 / 01:42 PM IST
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Seven consumer technology companies, most of them recent entrants to the stock market, have eroded Rs 2.83 lakh crore of investor wealth from their peak last year. The biggest loser is food delivery platform Zomato, whose shares were pummeled in the last two sessions.

Data shows Zomato shareholders have notionally lost Rs. 91,000 crore from its top valuation in November last year. This is equivalent to the current market value of DLF and Vedanta. PB Fintech (Policybazaar) and One 97 Communications (Paytm) have eroded Rs 44,000 crore and Rs 56,000 crore from their peaks.

Most of these companies landed on Dalal Street last year with the promise of representing the future of Indian business. The narrative was lapped up by Indian investors, and some of these names turned multi-baggers before crumbling.

Also Read: Aswath Damodaran, Rakesh Jhunjhunwala vindicated as Zomato tanks 12% more

The main reason behind the sell-off being was the absence of a viable path to profitability for most of these firms. As soon as the markets got a whiff of monetary tightening by the central bank, the selling intensified.

The selling that began late last year continued in 2022. In the calendar year so far, Zomato is down 70 percent, PB Fintech 50 percent, Paytm 48 percent, Just Dial 31 percent, Nykaa 31 percent, Info Edge 31 percent (Info Edge is also a shareholder in Zomato) and CarTrade Tech 21 percent.

Paytm, after a heavy fall since its listing, has been trading in a range for some time. Currently, it is trading near Rs 710, down two-thirds from its initial public offering (IPO) price of Rs 2,150. Policybazaar is trading near Rs 465, down 52 percent from its IPO price.

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The carnage in consumer tech stocks followed a similar rout in global markets. Most tech stocks in the US are trading down more than 50 percent including Rivian, Robinhood and Coinbase, which listed with much fanfare last year.

Also Read: Zomato allots 4.66 crore shares to employees at Re 1 apiece amid sell-off

To be fair, some of the domestic stocks have seen some buying recently as their valuations plunged to relatively comfortable levels. In the last one month, CarTrade has gained 14 percent, and Info Edge and Nykaa 3-4 percent. Zomato is the biggest loser even in this period, down 23 percent, although it saw some buying on July 27 after hitting a record low of Rs 41. During the session it was up 4 percent intraday.

The buying in Zomato also followed some positive commentary by analysts.

“From exuberance at the time of listing last year, Zomato is now unloved, having underperformed peers year to date. Blinkit acquisition elongates path to profitability and despite management guidance on a break-even in food delivery, investors are not giving much benefit of doubt. We think this makes for a great case for long-term investors to buy,” said Vivek Maheshwari, equity analyst at Jefferies.

He has a target of Rs 100 on the counter, which translates into a potential upside of 144 percent from its last closing price.

Some market participants believe this signifies hope. At the moment, however, profits seem to be the most important thing for investors, who have punished stocks that have faltered on delivering results.

We saw Tanla Platforms tanking 20 percent on July 26 and Tatva Chintan falling about 5 percent. Even Reliance Industries stock saw selling following its Q1 earnings after the company missed estimates.

So, as long as profits remain elusive, these stocks will suffer an overhang.

Disclosure: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

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Shubham Raj
Shubham Raj is a journalist with over five years of experience covering capital markets. His last stint was with The Economic Times where he wrote on daily happenings in stock markets and led IPO reportage. He also wrote on mutual funds and cryptocurrencies.
first published: Jul 27, 2022 01:42 pm