Zomato soars to $12bn valuation on Indian market debut

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The Indian food delivery company Zomato saw its share price jump as much as 80 per cent on its market debut in Mumbai on Friday, as it became the first of the latest wave of tech start-ups to go public.

Several other Indian tech companies, including the $16bn payments group Paytm, have been closely watching Zomato’s initial public offering to judge the appetite for other start-ups.

Zomato’s shares surged to a high of Rs138.90 ($1.87) on the National Stock Exchange of India from their issue price of Rs76 in early trading on Friday, valuing the lossmaking company at about $12bn. They closed at Rs125.85, up 65 per cent. 

India’s fast-growing tech groups have relied until now on foreign venture capital to fund their heavily cash-burning activities. But regulatory changes allowing lossmaking companies to list in Mumbai have encouraged several start-ups to look at the public markets.

“This is the first company in India, in my memory, that has gone for an IPO in India without turning a rupee of profit,” said SR Srinivasan, an independent investment adviser. “It shows the level of maturity in the market. Hopefully, it’ll be positive, but I’m guarded.”

Demand for Zomato’s shares came despite an uncertain outlook for food delivery companies elsewhere. UK-based Deliveroo flopped on its debut in London, falling 26 per cent on its opening day, though the shares have since risen. Shares in other listed delivery companies, JustEat Takeaway, Doordash and Meituan, have all fallen over the past six months.

But it has been a rollicking year for Indian stocks, which have followed global equity markets to records this year. The BSE Sensex index has climbed more than 10 per cent, hitting an all-time high last week.

The bullish mood has encouraged a stream of listings, with companies raising $3.9bn in the first half of 2021, according to Refinitiv, the most since the global financial crisis.

Zomato’s IPO, the largest in more than a year, is set to be followed by that of Paytm, a New Delhi-based payments group that filed a draft prospectus last week. As with Zomato, Paytm is backed by Chinese billionaire Jack Ma’s Ant Group. It is also lossmaking.

Other Indian tech groups believed to be waiting in the wings include the Walmart-owned ecommerce group Flipkart.

Proponents hope the string of listings will give equity investors an opportunity to participate in the growth of India’s tech sector, as US shareholders enjoyed through companies such as Amazon and Facebook.

They are also betting that Indian companies will benefit indirectly from a regulatory crackdown on Chinese tech groups that could prompt global investors to search for opportunities elsewhere. 

Chinese authorities hit ride-hailing business Didi with a data security probe days after it raised $4.4bn in a New York IPO last month, sending Chinese tech stocks tumbling and threatening what had been a lucrative market for Wall Street banks.

But Zomato and its peers face challenges of their own. For one, analysts are sceptical that Zomato, which reported a net loss of $110m in the year to March, has a plausible path to profitability.

Its economics have improved thanks to the boost to food delivery groups during the coronavirus pandemic, but order values remain low by global standards. Some analysts believe that mark could fall further as Covid outbreaks wane and people return to eating out.

Zomato’s food-delivery rival Swiggy raised $1.25bn this week from investors including SoftBank’s Vision Fund 2 and Prosus, the Dutch-listed investment unit of South Africa’s Naspers, at a valuation of $5.5bn.

The influx of funds could further intensify competition between the pair, which have squeezed out rivals such as Uber Eats with discounts and aggressive expansion into hundreds of cities.

Indian tech companies must contend with regulatory challenges of their own as the government looks to exert more control over user data and foreign investment. 

The government last year introduced curbs requiring investors from China to seek official approval, which prevented Zomato from receiving new financing from Ant.

“There’s a lot of money going in. But we have to look at the fundamentals: is there profitability, is the company good?” said Roopa Venkatakrishnan, a director with Sapient Wealth Advisors and Brokers in Mumbai.

“Profitability, because of the way the business is, may be two, three, four years down the line. But it’s something where people will have to invest for the long-term,” she said. “Today, with the euphoria, people invest with a very short-term view.”