Big Bull of Stock Markets Jhunjhunwala questions the Zomato hype

Rakesh Jhunjhunwala stated that Zomato must demonstrate austerity, corporate governance and technology to justify its high valuation and market capitalization

Zomato rose more than 60% on the day of listing on Friday to settle at INR 125.85, with a market cap of INR 1 lakh Cr at one point. On Monday, it opened at a high of INR 132.

Experts have emphasized that the Zomatos platform has the advantage of large numbers, but it falls short in both intensity and proprietary data

Rakesh Jhunjhunwala, the big bull of the Indian stock markets, believes that the hype surrounding Zomatos’ listing and its high market capitalization is not yet ready to be supported by money-making business models.

To speak during a webinar hosted by Equirus Capital, Jhunjhunwala wished Zomato the best of luck but said he won’t be buying his shares, adding that hangovers go to every party in town. “The hangover won’t come until the next day!”

“What I buy is very important, at what price I buy is the most important. Let Zomato be worth INR 99,000 Cr and Tesla $6 Tn. I am not going to buy these shares,” Jhunjhunwala said.

He added that a company needs opportunity, thrift, corporate governance, technology and the ability to change, although he loves the attitude of young entrepreneurs

Jhunjhunwala highlighted the fact that valuations of startups are expected too long, especially among tech companies. He added that people should only focus on business models that bring in cash instead of taking foreign money and burning billions of dollars.

“Changes are coming, but at a much slower pace than expected,” he said, comparing the new-age internet and technology-based startups to those from HUL, Asian Paints, Pidilite and many others, which took decades to provide investors with a sustainable future. return that was supported. by strong models.

Zomato rose more than 60% on the day of listing on Friday to settle at INR 125.85, with a market cap of INR 1 lakh Cr at one point. On Monday, it opened at a high of INR 132.

Challenges for Zomato

In total, the INR 9,375 Cr Zomato IPO received 2,751.27 Cr bids for a total issue size of 71.92 Cr shares, according to National Stock Exchange (NSE) data.

The Qualified Institutional Buyers (QIBs) section of Zomato IPO was the most oversubscribed at 51.79 times the offering size. Foreign institutional investors (FIIs) led the QIB part, followed by banks, financial institutions and mutual funds.

Valuation expert and professor of corporate finance at New York University’s Stern School of Business, Ashwath Damodaran noted in his blog that according to the financial data shared by the Zomato in its draft Red Herring Prospectus (DRHP), the company’s shares should are valued at INR 41, almost half of the actual issue price.

Damodaran has listed a number of properties that led to the valuation of INR 41. He estimated that the food delivery market in India would reach $40 billion and that Zomatos’ market share would reach 40% in the next five years and an operating margin of 30 per year. cents for his calculation. This means, among other things, that the Indian market is diversifying very quickly and it is possible that Zomato will have a share of up to 20% in the food delivery market of USD 10-40 billion. If rival companies, including Swiggy and Amazon’s food delivery initiative, engage in aggressive betting, the market dynamics could change significantly.

Experts have emphasized that the Zomatos platform has the advantage of large numbers, but it falls short in both intensity and proprietary data. So, Zomato app users are only on the system when ordering food, and engagement is often limited to food ordering and delivery.

In a similar way, Jhunjhunwala stated that Zomato was handing out huge discounts to get a large user base. But to justify the valuation, it must demonstrate a turnover of INR 4000 Cr and above, as companies with a similar valuation have done.