Zomato can register at a 30-35% premium by subscribing to heavy; Has some red flag, said Gaurav Garg from Capitalvia

Zomato RS 9,375-Crore Food Delivery Platform The initial public offering, which is open to subscribe on July 14, can list at a 30-35 percent premium, Gaurav Garg, a research head at Capitvia Global Research said.

The company has several red flags, including competition from its biggest rivals, Swiggy, and ongoing disputes with restaurants with discounts, he told MoneyControl’s Sunil Shankar Batakakar in an interview.

He said that considering the expected growth, the problem seemed quite cheap.

Edited quote:

Zomato IPO is set to open a subscription on July 14, with ribbon price of Rs 72-76 per share. Do you think this problem is quite cheap on current financially and expected growth?

In February 2021, Fidelity, Kora Management, Global Global, Dragoneer, and Bow were among investors who invested $ 250 million, assessing the company of $ 5.4 billion. The company has collected nearly $ 2 billion since last year. Many people question whether the company based in Gurugram deserves a high assessment considering the activities of making losses. From the fiscal year of FY18 to FY20, the food delivery company has a net loss history, including RS 813 Crore losses at FY21. Although the company loses money, the assessment of the anchor investors has increased public trust, with the corporation aiming at an assessment of a $ 10 billion in the next five years. With the expected growth in mind, this problem seems to be quite cheap when viewed in terms of assessment.

Zomato is currently trading with a premium of 21-26 percent in the gray market. Do you expect premiums to improve upcoming sessions and listings to more than 50 percent?

Based on the demand for internet-based food delivery services, the gray market premium can rise to 27-30 percent. The company can register at a 30-35 percent premium because it has several red flags, including competition from its biggest competition, Swiggy and ongoing disputes with discounts between restaurants and zomato.

Why did Zomato increase the size of the problem to Rs 9,000 Crore from the previous 7,500 crore RS? Does it get a strong demand from investors or other reasons?

Public Offering Rs 9.375-Crore Zomato consists of a new problem RS 9,000 Crore and RS 375-Crore Offer For sale by Edge Info Shareholders available. The size of the fresh problem increased from Rs 7,500 Crore to Rs 9,000 Crore. Info size from Edge cut half, from Rs 750 Crore to RS 375 Crore. Despite the fact that the company lost money, demand has developed due to the fact that it is the first Startup Unicorn to go public and the type of industry entered. Therefore, the company has decided to use the opportunity to increase more capital that will provide good pillows to improve operations.

Do you think it’s a multibagger story?

It’s too early to conclude Multibagger. In the long run, the competition from Swiggy and Amazon’s intentions to enter the market can pose a danger for Zomato. We believe that the company will include the premium, however, whether it becomes multibagger or will not depend on how well and how fast it is able to reverse the operation from making profits.

Will Zomato IPO see a star subscription for July 14-16? What can be a subscription level?

Many companies have been published in recent years have received more than two digits (time) subscribing, with several companies, such as easy travel planners Ltd, accepting three-fold subscriptions (159 times). On July 8, Zomato confirmed an investment of $ 100 million in Grofers to develop a grocery strategy and said that it would immediately introduce the supermarket part of its application. By looking at market conditions and demand for the company, we can expect a two-digit subscription.

Zomato is constantly posted losses, but income has grown every year. What is your view and you hope the company will benefit in the coming years?

Startup first took a loss because they needed to expand their business, and the pandemic had a negative influence on their operations. In the case of Zomato, it has expanded its company to another vertical, which means that spending will be greater and can lead to losses in the early years.

The positive economic unit obtained by food giving companies in 2020 can be a welcome sign, but it is too early to be called a long-term trend. This is a step in the right direction, but there is still a long way. If the trend continues, the company may be able to reach the break-even point by FY23 and then we can see some advantages that enter the following years.

What are the criteria that judge for companies like Zomato which is one of the first unicorns that hit D-Street? How can investors measure technology-based company performance?

Assessing startup, especially technology-based companies, challenges investors because while certain data, such as finance, may seem bad because companies can post losses from the year. On the other hand, other factors, such as demand for corporate products / services and how they disturb the old business with new ideas, can encourage investors to put their money into the company. Customer acquisition costs, assessment, income, and competition from other players (in this example, Amazon and Swiggy) are some aspects to consider for technology-based companies.