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Zomato debuts at 52% premium, expert weighs in on near-term valuation

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Zomato debuts at 52% premium, expert weighs in on near-term valuation

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The shares of Indian food delivery firm Zomato Ltd nearly doubled in value on its debut on July 23 as it is the first stock market listing of an Indian startup valued at more than $1 billion. On Zomato’s listing valuations, Sudheer Guntupalli, Lead Analyst-Technology Sector at ICICI Securities said, “In terms of valuation, its near-term valuation is a misleading metric to look at the company given that neither the sales nor the profitability structure has yet attended the steady state.”

The shares of Indian food delivery firm Zomato Ltd nearly doubled in value on its debut on July 23 as it is the first stock market listing of an Indian startup valued at more than $1 billion.

The stellar debut, which was advanced by four days, reflected investor interest in internet-based consumer startups that are expected to thrive during the COVID-19 pandemic. Moreover, Zomato listing comes at a time when India's stock market is near all-time highs.
The online food delivery platform’s shares soared 82.8 percent after opening at Rs 116 apiece on the NSE in pre-open trade, which was a 52.6 percent premium over its initial public offering (IPO) price of Rs 76, valuing the company at about $12 billion.
The home-grown food aggregator, launched in 2008, operates in about 525 cities in India and has partnered with close to 390,000 restaurants.
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On Zomato’s listing valuations, Sudheer Guntupalli, Lead Analyst-Technology Sector at ICICI Securities said, “In terms of valuation, its near-term valuation is a misleading metric to look at the company given that neither the sales nor the profitability structure has yet attended the steady state.”
He said that many times investors tend to look at FY22 or one-year forward sales and two-year forward profits for such companies that are in a high growth phase, and so valuations tend to look very expensive. “Fact of the matter is we should not be excessively worried about the near-term valuations or the near-term profitability,” he added.
Guntupalli reiterated that near-term profitability, near-term sales, and near-term valuations are misleading metrics to look at companies like Zomato or some of the upcoming internet IPOs as well.
Guntupalli said, “At this juncture, we will be focused on scalability angle, the overall market potential and the third factor is healthy unit economics before marketing/branding overheads. Once branding overheads are done, how that unit economics can translate into strong margins and strong cash flows is what we will be focused on at this juncture.”
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