Foodtech company Zomato’s shares fell 9% on the Bombay Stock Exchange (BSE) on Monday (August 23) as the 30-day lock in period for anchor investors ended. The company’s shares opened at INR 138.10, hitting an intra-day low of INR 124.9, and settling at INR 127 when trading closed for the day.
According to SEBI norms, an anchor investor means a qualified institutional buyer who makes an application for a value of at least INR 10 Cr in a public issue. They cannot trade their shares till 30 days after the listing so that individual retail investors do not suffer.
“There is no fundamental change in how the business is perceived by investors. It is justifiable that anchor investors would like to book gains given that the stock has risen quite high above the IPO issue price. Now, the liquidity of Zomato is bound to increase as more shares would be available,” said Deven Choksey, managing director of brokerage firm KR Choksey Shares & Securities.
Interestingly, a note by ICICI Securities today set the target price of Zomato shares at INR 220. A target price is an estimate of the future price of a stock. Target prices are based on earnings forecasts and assumed valuation multiples.
“In our view Zomato is a great value stock, unlike what the street believes it to be. Our target price of INR 220 bets on ~22 Mn Indians ordering ~4 times / month in FY25E. This is a low bar given that India today has around 35 Mn credit card users and 114 Mn Paytm transacting users who likely fall in the super user category/user funnel. We value the stock at 55x 2-year forward P/E, in-line with a median consumer discretionary stock. Initiate coverage with Zomato as our high conviction BUY,” the note from ICICI Securities added.
The company, which had its public listing on July 23, saw its revenue from operations increase from INR 591.9 Cr in the quarter ended March to INR 757.9 Cr in June quarter on a standalone basis, growing 28% quarter-on-quarter. Meanwhile, adjusted revenue grew by 26% quarter-over-quarter to INR 1,160 Cr and adjusted EBITDA loss increased 42.66% from INR 120 Cr to INR 170 Cr in the same period, the company’s financials revealed recently.
Experts suggest that investors are betting big on the Indian market beyond Zomato to drive this demand. Valuation expert and professor of corporate finance at Stern School of Business at New York University, Ashwath Damodaran, noted in his blogpost on the day of the listing that the company’s shares should be valued at INR 41, almost half of the actual issue price of INR 76.
“That may seem like a lot to pay (INR 41) for a money-losing company with less than INR 20 Bn in revenues in the most recent year, but promise and potential have value, especially when you have a leader in a market of immense size. That said, the stock’s pricing (72-75 INR, per share) makes it too expensive,” he wrote.