Zomato may See Good Listing Gains, but Big Returns Unlikely Later

Indian stock buyers will get a rare opportunity to invest in a professionally managed, new age start-up when Zomato IPO opens this week for subscription. Scarcity premium may keep demand high for Zomato IPO, and the stock may see good listing gains.

To be sure, that may not necessarily warrant sustained outsized returns after listing with several global investors turning bearish lately on the food delivery businesses of overseas listed peers, such as Door Dash, Grub Hub (Just Eat takeaway.com) and Delivered. Their stocks have given negative returns in the past one year or from the time of listing, sharply underperforming Nasdaq that is up 40% in one year.

BUSINESS AND FINANCIALS

The company was founded in 2008, but entered the food delivery business only after 2015. It is a professionally run company without any promoters. Its main business includes food delivery services (~90% revenues), but it also generates some revenues from farm supplies to restaurants and other online platform services related to restaurants. It has a presence in 23 countries but now wants the focus only on India.

From FY18 to FY21, its revenues have grown at 64.5% CAGR, which also includes growth from acquisition of Uber Eats in FY20. But in the pandemic year, its revenues fell from Rs. 2,605 crores in FY20 to Rs. 1,994 crores in FY21. Average monthly transacting users reduced from 10.7 million to 6.8 million. However, bill per transaction increased as delivered meals, which were conventionally seen as a habit for office workers, were replaced by families that stayed at home. S-ET

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