Kunj Bansal, CIO – Karvy Capital
Zomato offering is expensive when seen in comparison to similar investment opportunities in the global market and such valuations are more due to the demand of offering and not necessarily based on the financials of company, Kunj Bansal, CIO, Karvy Capital, said in an interview with Moneycontrol’s Kshitij Anand.
Q) The much-talked-about food delivery IPO will hit the Street next week. The Rs 9,375-crore Zomato IPO looks a tad expensive, especially when it makes losses amid rich valuations. What are your views?
A) The offering indeed is expensive, especially when looked at in the context of its financials. In fact, the company is making losses.
Ideally, such companies are more appropriate for private fundraising instead of public fund raising. However, with the relaxation in the regulatory environment and looking at massive interest in new offerings, probably the company thought of this to be the right time to make a public offer.
Q) There is a saying ‘stock prices are slaves of earnings’. We know that cash burn is necessary for companies like Zomato to build/grab market share. So, what is Street discounting?
A) There is a huge money inflow in the market, both from the international and the domestic investors. The risk appetite seems to have been going up.
With every next unit of incremental money, an HNI investor feels pleasure and satisfaction in taking exposure to exotic investment opportunities.
Offerings like Zomato fall somewhere in this category and that is why the Street response seems to be positive.
Q) Do you think the stock could double on listing day? Or at least we could see a pop of over 50%?
A) Very difficult to predict these things. Still, doesn’t look like 50%-plus kind of return on listing. However, some marginal return is possible. Longer period return will be a function of financial performance.
Q) How do you peg Zomato with respect to global peers? Do you think it is expensive?
A) Yes, the offering is expensive when put in comparison to similar investment opportunities in the global market. As I said earlier, such valuations are more due to demand of offering and not necessarily based on the financials of the company.
Q) What is the valuing criteria for companies like Zomato (the unicorn startups) hitting D-Street? How can investors measure their performance?
A) If a company is at loss at the EBIDTA level, it is generally valued at X times of Sales as long as sales are growing at high rates.
Once the company starts to report positive EBIDTA – the valuation moves to x times of EBITDA, and then it get followed by x times of profit.
At all times, there is an underlying assumption that the company’s top lines has to keep growing and profitability has to flow in at some point of time.
This is a very broad guideline and nothing is very specific in such valuation criteria.
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