ZOMATO MOST VALUABLE AFTER COAL INDIA ON LISTING DAY

The enthusiastic response to Zomato’s initial public offering (IPO) and the listing day surge is likely to act as a big boost to the start-up ecosystem. Market players said a successful stock market debut will encourage venture capital and private equity investors to back more domestic start-ups and motivate more unicorns, unlisted firms worth more than $1 billion, to resist the temptation to list in the US to make their debut overseas.

The company’s ~9,375-crore maiden offering was considered a test case for other tech and startups waiting in the wings to go public. Zomato’s IPOS drew bids worth ~2.1 trillion as it was subscribed 40x. On Friday, the stock ended with a gain of 66 per cent.

Many see this as a sign of a mature capital market and one where domestic investors are open to back companies that are not making any profits, or conform to the normally accepted benchmarks. “Zomato’s stellar debut on the domestic bourse after attracting robust subscription is a testimony to investors’ willingness to bet big on new-age technology companies that have the characteristics of a disruptive business model. 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 further deepen our capital market in the coming

years,” said S Ramesh, managing director and CEO, Kotak Mahindra Capital Company.

Zomato’s losses widened every year between FY18 and FY20 from ~107 crore to ~2,386 crore. However, the cash burn has helped the company grow its top line five times from ~466 crore to ~2,605 crore.

Paytm, Nykaa, Policybazaar and Mobikwik, among others, are waiting in the wings to launch their IPOS.

For large start-ups, the US market is considered to be a preferred destination. A few domestic companies, such as travel portal Makemytrip, have, therefore, opted to list there as Indian investors were seen hesitant to pay the kind of valuation private equity investors or the US markets pay.

However, Zomato’s listing has quashed these notions. Investment bankers said listing in the US does not necessarily give companies access to more investors than India. Listing in Indian markets offers companies an additional pool of institutional investors in mutual funds and insurance companies, apart from foreign investors. And listing in the home market is a significant boost to the brand and creates excitement, which does not happen if they list in the US.

However, some say it was too early to conclude if Indian markets have matured to accept loss-making unicorns. “We are seeing the mother of all bull markets for primary and secondary markets. And it is not just for Zomato. Stocks of hotels, airlines and even companies that have turned their net worth negative are hitting record highs. One should not take this as proof of domestic investors getting comfortable with loss-making companies. We will have to wait and see if this trend sustains for 3-6 months and whether more unicorns find the support Zomato got,” said G Chokkalingam, Founder, Equinomics.

Ambareesh Baliga, an independent analyst, termed Zomato’s reception as an investor frenzy associated with bull markets.

“People are pouring money and expecting Zomato to perform. Such people are outnumbering those who are cautious based on fundamentals. As long as they outnumber cautious investors, the stock will move up,” said Baliga.

“As long as they are making profits, the confidence level is high. But every day is not a good day in the markets. You have a long bull run, and then it collapses very badly.” Further, analysts said the listing would put a lot of pressure on Zomato to turn profitable and other unicorns planning to list need to be aware that handling public investors is very different from handling private equity investors. “Now everything related to you, including the financials, are in public domain. Earlier, no one bothered about your financials except the private equity guys. And you will have pressure every quarter, and they were dealing with savvy investors earlier, which is no longer the case,” said Baliga.