Zomato was one of the most-hyped IPOs in recent times and the response has been tremendous. Subscription for the IPO was excellent and on its first day at the stock market – the Zomato Share Price closed with 66% gains.
A loss-making internet company, which may not turn profitable in the near future, is now commanding a valuation of ₹ 1 lakh crore.
If you are wondering how big 1 lakh crore is: Zomato is now bigger than the companies listed below.
|Bajaj Auto||1,11,262 crore|
|Tech Mahindra||1,08,546 crore|
|SBI Life Insurance||1,07,716 crore|
|Godrej Consumer||99,887 crore|
|Indian Oil||98,519 crore|
|Tata Motors||97,318 crore|
|SBI Card||95,738 crore|
|ICICI Prudential||92,856 crore|
|Dr Reddys Labs||90,042 crore|
|Berger Paints||82,919 crore|
|Eicher Motors||70,031 crore|
|Indigo Airlines||67,005 crore|
|ICICI Lombard||66,188 crore|
|Info Edge||65,620 crore|
|Muthoot Finance||62,266 crore|
|Hero Motocorp||56,160 crore|
|United Spirits||47,787 crore|
|Jubilant Food||46,873 crore|
The list above includes some of the biggest and most iconic companies in India. Zomato is now valued on-par with Pidilite Industries, known for its ‘Fevicol’ brand.
In the last financial year: Pidilite made ₹ 1,131 crore in profits. Zomato lost ₹ 816 crore!
Zomato is as big as Info Edge and Jubilant Foodworks combined!
Info Edge holds a 15% stake in Zomato and Jubilant Foodworks a highly-profitable company which sells Dominos Pizza.
Analysts on business channels have been highly critical about the “outrageous” valuations of Zomato. But the market, after the listing, has painted a completely different picture.
The market is saying: Internet companies are to be valued and looked at differently from other traditional and well-established businesses.
Should they be? Can Zomato one day become a booming highly profitable business?
Let us look at some stats that support Zomato; because the company does seem to be special in its own way.
- Even as I write this at 8AM in the morning. I can see a Zomato guy, deliver a food packet at my building.
- These delivery guys didn’t even exist a few years ago, now they are everywhere. Isn’t that amazing?
- The company delivered 40 crore orders in financial year 2020 – that’s a massive number.
- The orders were down to 24 crores in 2021 – but that was because of lockdowns.
- Even though the orders were down last year, the company cut its losses by 65%. The losses were down from ₹ 2386 crore to ₹ 816 crore.
- After Zomato acquired UberEats, the food delivery business has only two players. Swiggy is the leader with a slightly higher market share of 47%, Zomato is almost at-par with 45% market share.
- The big threat to both could be Amazon, a company with deep pockets, gearing up to scale-up its food delivery business – which is currently running on a small scale at select areas in major cities.
Buy or Sell Zomato Shares?
Now, the big questions.
Q. I have shares from the IPO, should I buy or sell my shares which are currently in profit?
A. As a retail investor, you might have received one lot (195 shares) or a maximum of two lots if you applied from multiple accounts. The value of one lot at closing price on 26th July 2021 is around ₹ 27,500. If you have a large portfolio and this amount is small, there is no harm in holding the shares.
However, we have a lot of students who visit our website. For them, 27.5k is a significant amount. Now let’s now be too greedy – You have already made nearly 100% returns in less than 15 days. It would take 10 years to get such returns from a fixed deposit!
While ‘share price has gone too high’ should never be the only reason to sell shares, there is no denying that the current valuation of Zomato is very high.
Here’s what you could do – If you do not want to sell all your shares, you could sell 105 out of the 195 shares. This way, you get your IPO investment amount back and the remaining 90 shares are as good as free. Very little to worry.
Q. Should I buy Zomato Shares at current price?
A. We are not investment advisors, we do not give buy or sell recommendations on this website. I can only tell you what I would do at this point.
I would not buy Zomato at this price. It is not just because of the valuation factor, but because it makes more sense to wait and see how the business progresses this year.
There will be more clarity on these questions:
- Number of orders were down last year, will the company deliver more orders in this financial year?
- Likewise, is there improvement in other business parameters?
- Is the company taking steps in the direction of becoming profitable in the next few years?
- How serious is Amazon about its food delivery business? Knowing Amazon, if they are serious, it is only a matter of time before they eat away market share from Swiggy and Zomato.
- Also, let the company come out with results for the next few quarters, we will get a lot more clarity.
And finally, there are a lot of companies listed in the stock market. Many of them, still under valued.
When there are too many people taking interest in Zomato, we as mature investors should be looking at better opportunities.
A stock which is less talked about is usually the one which gives excellent returns or becomes a ‘multibagger’. Hyped-up companies always end up giving better opportunities in the future.
And if there is one thing that I’ve learned from my 10 odd years in the stock market – there will ALWAYS be opportunities. It is about taking them at the right time.
In short, Zomato is either a hold or sell at the time of writing this article. Be extremely cautious before taking new positions.
Disclaimer: We are not SEBI-Registered investment advisors. We do not give stock recommendations. You are responsible for your decisions.