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Zomato delivers stellar returns on Street debut
In a blog post, Goyal thanked employees, investors and rival companies for contributing to Zomato’s success.
Zomato Ltd delivered sterling returns for investors, surging 65% in its stock market debut on Friday and turned its founder, Deepinder Goyal, into a billionaire.
The 13-year-old food delivery company ended trading at ₹125.30 on BSE, valuing the company at $13.3 billion. But, soon after its trading debut, Zomato’s market value soared past the ₹1 lakh crore mark, catapulting it to one of the 50 most valuable publicly traded firms in India, beating storied companies such as Mahindra and Mahindra, Tata Motors and Coal India Ltd.
The company’s shares opened trading at ₹116, a 53% premium over the IPO price of ₹76, and then hit an intraday high of ₹138.90.
Zomato became the first major new-age Internet company in India to trade publicly. A raft of Internet firms—many of them loss-making like Zomato—is set to go public soon as the disruptions caused by the pandemic prompted an unprecedented surge of people ordering food, buying groceries and making payments through apps.
At the close of trading, founder Goyal’s stake in the food delivery company was worth around ₹4,650 crore. Goyal holds 5.5% or 369.47 million shares in Zomato. He was also allotted 368.5 million options in April. If Goyal exercises the options, which vest over the next six years, his net worth will be worth $1.25 billion at Friday’s prices.
In a blog post, Goyal thanked employees, investors and rival companies for contributing to Zomato’s success.
“The tremendous response to our IPO gives us the confidence that the world is full of investors who appreciate the magnitude of investments we are making and take a long-term view of our business,” Goyal wrote in a blog post. “I don’t know whether we will succeed or fail--we will surely, like always, give it our best,” he said.
Their IPO was subscribed about 40 times last week. It received bids for 29.04 billion equity shares against an IPO size of 719.23 million equity shares. It aimed to raise ₹9,375 crore.
“Zomato listing signifies a strong risk appetite for the new and next-generation business models. Today’s listing performance will provide a positive signal to the Indian start-up ecosystem. We could see this trend continue in the upcoming IPOs, as the present market conditions are conducive for the primary market,” said Naveen Kulkarni, chief investment officer, Axis Securities.
Others concur. Though the listing is much above expectations, current investors can hold on to their shares as this new business is forecast to grow at the high digit in the early stage of the cycle, said Vinod Nair, head of research at Geojit Financial Services. “New and existing investors can accumulate on a short to medium-term basis, as the trend of stock price stabilizes. A key factor for the stock price to sustain this euphoria is demonstrating improvement in profitability in the coming quarters,” Nair said.
Ahead of Zomato’s IPO, analysts were optimistic about listing gains but were cautious about the company’s long-term risks. The expensive valuation demanded at a time the food delivery service is still making losses and upcoming competition with Amazon’s entry into the segment are making analysts wary. Zomato operates in a duopoly—the other player being Swiggy—and has created strong entry barriers with a widespread network. It operates in a highly under-penetrated market where of the total food consumption in India, only 8-9% is from restaurants, of which only 8% is online food delivery.
“With growing internet penetration and the number of smartphone user base increasing month after month, the entire private digital ecosystem will enable wealth creation and deepen our capital market in the coming years,” said S. Ramesh, managing director and CEO of Kotak Mahindra Capital Co.
