Zomato IPO opens today: Valuations for such firms discount futuristic growth, say analysts

Food delivery company Zomato Ltd. (Zomato) - a food delivery company, is planning to raise up to Rs 9,375 crore through an IPO, which opens today (July 14). It closes on July 16, 2021. The price band is in the range of Rs.72-76 equity shares. The total issue size is aggregating up to Rs 9,350 crore which comprises fresh issue of equity shares aggregating up to Rs 9,000 crore and Offer for sale of equity shares aggregating up to Rs 350 crore. The shares will be listed on BSE and NSE.

Arun Malhotra, Founder & CIO, CapGrow Capital Advisors (SEBI Registered PMS), said, Zomato is an excellent, consumer centric, non-linear digital business model that will have huge operating leverage. Profitability is always a challenge in initial years for such companies, but only one player survives, and gets the majority share of both revenues and profitability. Valuations for such companies discount the futuristic growth and will never be cheap. One needs to be a patient investor for a high growth company like Zomato to reap splendid returns. IPO seems to be richly prized in the short term but that is the way such companies will always trade, he said.

Saurabh Joshi Research Analyst at Marwadi Shares and Finance Limited believes that the company is going to list at a P/S (Price to Sales) of 29.9X based on its FY21 sales with a market cap of Rs. 5,96,234 million. As there are no listed peers in India, so valuations cannot be compared on a relative basis. "We recommend to “Subscribe” to this IPO as the company is one of the leading foodservice platforms in India having recognized consumer brand equity and is well placed to capitalize on the large market opportunity available in India."

Zomato has raised a little over Rs 4,196 crore from anchor investors ahead of its initial share sale, which opens for public subscription on Wednesday.

The company has decided to allocate 552,173,505 equity shares to anchor investors at Rs 76 apiece, aggregating the transaction size to Rs 4,196.51 crore, according to a circular uploaded on BSE website.

BlackRock, Tiger Global Investments Fund, Fidelity, New World Fund Inc, JP Morgan, Morgan Stanley Asia (Singapore) Pte-ODI, Goldman Sachs (Singapore) Pte -ODI, T Rowe, Canada Pension Plan Investment Board, Government of Singapore, Monetary Authority of Singapore and Abu Dhabi Investment Authority are among the anchor investors.

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