Zomato’s euphoria may not last, short-term investors should register profits: experts

Food tech startup Zomato made a stellar debut on the stock exchanges on Friday with its stock market listing at Rs 116, or 52% of the issue price of Rs 76. Frenzied demand drove the share price to Rs 139.20, the upper end of the intraday circuit filter, before profit recording.

Zomato’s spectacular start and leadership position in a rapidly growing market despite some market watchers warning that valuations are expensive at these levels and may not hold up in the near term.

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Sudip Bandyopadhyay, Group Chairman, Inditrade Capital, says that while he is positive about the long-term prospects for Zomato’s business, retail investors should remain very cautious due to extremely stretched valuations.

“Zomato’s valuations are extremely stretched. I’m not comfortable with such nonsensical ratings. Retail investors should be very cautious and take profits whenever there are signs of minor corrections,” Bandyopadhyay said.

He thinks investors with a very long-term strategy and an ability to take risk can stay, but smaller investors should exit at the current market price.

“I’m not comfortable with huge loss-making companies coming in with IPOs at extremely high valuations. The euphoria around Zomato may end soon,” Bandyopadhyay said.

He noted that currently, Zomato is loss-making, and compared to its global peers, the company’s valuation is above the global peer average.

Jyoti Roy, DVP-Equity Strategist, Angel Broking also suggested that short-term investors looking for quote gains may exit the stock while long-term investors may book partial profits.

“Given a strong delivery network, high barriers to entry, an 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,” Roy said.

Zomato’s IPO has generated a lot of interest given the uniqueness of the company, the large size of the opportunities, and some evidence of economies of scale. The issue was subscribed 38.25 times from 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, Brokerage and Distribution, Motilal Oswal Financial Service is positive on the long-term company. He believes Zomato, with the first-mover advantage, is in an ideal position as the online food delivery market is on the cusp of evolution. It benefits from a few moats and with the economy of scale starting to play out, the losses have gone down considerably.

“Although predicting the growth trajectory at this stage is a bit tricky, but it’s a good bet from a long-term perspective,” Poddar said.

As of 12:50 p.m., shares of Zomato were trading at Rs 126.90, 10.35% higher than its listing price and around 67% higher than the issue price on BSE.

First post: STI