Food-tech startup Zomato made a stellar debut on the bourses Friday with its stock listing at Rs 116, a 52 percent to the issue price of Rs 76. Frenzied demand lifted the share price to Rs 139.20, the upper end of the intra-day circuit filter, before profit booking set in.
The spectacular debut and Zomato's leadership position in a fast growing market notwithstanding some market observers have cautioned that valuations are expensive at these levels, and may not sustain in the short term.
Sudip Bandyopadhyay, Group Chairman, Inditrade Capital says though he is positive about the long term prospects of the business Zomato is into, small investors should remain very careful due to extremely stretched valuations.
“Zomato’s valuations are extremely stretched. I am not comfortable with such absurd valuations. Retail investors should be very careful and book profits whenever there are signs of minor corrections,” Bandyopadhyay said.
He believes investors with very long term strategy and risk-taking ability can stay, but small investors should exit at the current market price.
“I am not comfortable with huge loss-making companies coming with IPOs at extremely high valuations. The euphoria around Zomato may end soon,” Bandyopadhyay said.
He noted that currently Zomato is loss-making and as compared to global peers, the company’s valuation is at a premium to the global peer average.
Jyoti Roy, DVP- Equity Strategist, Angel Broking also suggested short-term investors that were looking for listing gains can exit the stock while long-term investors can book partial profits.
“Given a strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities we continue to remain positive on the stock from a long term perspective,” said Roy.
Zomato’s IPO generated a lot of interest given the company uniqueness, large opportunity size, and some evidence of scale economies. The issue was subscribed 38.25 times during July 14-16 and received bids for 2,751.27 crore equity shares against the IPO size of 71.92 crore equity shares.
Sneha Poddar, Research Analyst, Broking & Distribution, Motilal Oswal Financial Service is positive on the company for the long term. He believes Zomato with first-mover advantage is placed in a sweet spot as the online food delivery market is at the cusp of evolution. 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 a long term perspective,” Poddar said.
At 12:50 pm, the shares of Zomato were trading at Rs 126.90, 10.35 per cent higher than its listing price and around 67 percent higher than the issue price on the BSE.
First Published: IST