Zomato IPO Update | Trading premium halves in grey market as issue opens for subscription


The premium over issue price has dropped to 11.8-13.2 percent from 21.1-26.3 percent (Rs 16-20 per share) seen at the time of announcement of the price band last week

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The trading premium of Zomato shares almost halved in the grey market on July 14, as the initial public offering (IPO) of the food-delivery platform opened for subscription. The reasons could be its expensive valuations compared to global peers and the company’s loss-making status, experts said.

Shares were trading at a premium of Rs 9-10 in the grey market, which is at  Rs 85-86 against the issue price of Rs 76, the higher end of the price band, data available on the IPO Watch and IPO Central showed.

The grey market is an unofficial trading platform where shares get traded well before the allotment in an IPO and listing on bourses.?

“Currently, the company is loss-making. Also, there is no listed domestic peer having same line of business as the company. We have considered global peers for valuation benchmarking. At a higher price band of Rs 76, Zomato is demanding a TTM (trailing twelve months) P/S (price to sales) multiple of 29.9x, which is at a premium to the global peer average. Thus the issue seems to be overpriced,” said Rajnath Yadav of Choice Broking.

In percentage terms, the premium over issue price dropped to 11.8-13.2 percent from 21.1-26.3 percent (Rs 16-20 per share) seen at the time of announcement of the price band last week.

Also read – Zomato IPO opens: 10 key things to know about the issue and the company

The IPO had been subscribed 25 percent till noon. The offer received bids for 17.96 crore equity shares against the IPO size of 71.92 crore equity shares, data available on the exchanges showed.

Retail investors were yet again at the forefront, as the portion set aside for them has been subscribed 1.33 times, while non-institutional investors put in bids for 4 percent against their reserved portion.

Also read: Here’s a list of top 10 executives who will become millionaires when Zomato goes public

Yadav counted an asset-light scalable business model, expanded target market post the pandemic and first-mover advantage in food delivery business among the positives for the company.

“But its operations in almost duopoly market may attract regulatory actions, which would be negative for the company. Also, its operations are generating heavy losses, albeit some improvements in FY21, which we believe is not sustainable once socialisation normalises post-pandemic,” he added.

Considering these factors, Yadav said the IPO is not for retail investors but those with a higher risk appetite and long-term investment horizon could apply. “Thus we assign a ‘subscribe with caution’ rating for the issue,” he said.

Also read: Zomato IPO: Founders of other startups recall Deepinder Goyal’s journey, wish him luck

Zomato is an end-to-end food service aggregator, having a scalable technological platform that connects customers, restaurant partners and delivery partners. Currently, the company derives around 75 percent of the revenue from the food business.

Also read: Moneycontrol’s exclusive research note on Zomato IPO

Zomato is looking to enter online grocery space, with the acquisition of a 9.3 percent stake in Grofers. The company has sought regulatory approvals for this proposed investment.

Online grocery is at a nascent stage but is growing rapidly and thus offers a great opportunity for Zomato, Yadav said.

The Rs 9,375-crore public issue of the food delivery giant opened for subscription on July 14. The company garnered Rs 4,196.51 crore from 186 anchor investors on July 13.

Also read: Zomato IPO opens for subscription today: Should you place an order?

The offer comprises a fresh issue of Rs 9,000 crore and an offer for sale of Rs 375 crore by Info Edge. The fresh issue proceeds are going to be utilised for funding organic and inorganic growth initiatives (Rs 6,750 crore).

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.