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Will Zomato continue to impress following glowing IPO?

One analyst believes that the Indian food-delivery player, backed by Ant Group, is a good long-term bet.

  • Zomato Ltd (NSE: ZOMATO) share price slips to 125.80 rupees a share on Wednesday (28 July 2021)
  • It clocked a 65.8% jump from its IPO price when it went public last week
  • Some analysts favour the firm even though it has yet to turn a profit
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Zomato stock pauses winning streak

Shares of online food-delivery and restaurant platform Zomato lost some momentum this week after a gleaming debut on Indian bourses last Friday that valued the company at 988.49 billion rupees (US$13.28 billion).

As of 13:30 SGT on Wednesday, it was trading at 125.80 rupees (US$1.68), down 5.3% from the previous close.

The food startup, backed by China’s Ant Group, had finished its first day of trading on the National Stock Exchange (NSE) of India at 126 rupees (US$1.69) per share, climbing 65.8% from the initial public offering (IPO) price of 76 rupees (US$1.02). The stock had opened at 116 rupees (US$1.56).

The counter rallied another 11.6% on Monday, but fell 7.1% on Tuesday to finish at 130.65 rupees (US$1.76).

Zomato’s shares are also trading on BSE, India’s other stock exchange, where they opened at 115 rupees (US$1.55) apiece last Friday.

Why do research teams like Zomato?

Zomato was the first among several first-generation homegrown startups in India preparing to go public on domestic stock markets.

With its first-mover advantage, Zomato is ‘in a sweet spot as the online food-delivery market is at the cusp of evolution’, said Motilal Oswal Financial Services analyst Sneha Poddar.

She also sees Zomato’s stock as a good long-term bet, although ‘predicting the growth trajectory at this juncture is a little tricky’.

UBS analysts have initiated ‘buy’ on the shares with a target price of 165 rupees. UBS predicted Zomato will post a compound annual growth rate of more than 40% given its leading position in the rapidly growing market, ‘making it one of the fastest-growing internet companies in the region’.

However, other research teams have expressed concern that Indian startups in general need to start showing consistent profits and healthy exits for investors, CNN reported.

Will Zomato stay loss-making?

The company’s food-delivery app has partnered restaurants and cafes in 525 Indian cities. Users can also reserve tables for dining in, write food reviews, and upload photos.

But Zomato has not turned a profit. It reported a loss of 8.16 billion rupees in the financial year ended 31 March 2021, an improvement from the 23.86 billion rupee loss in the previous year.

Nonetheless, Zomato ‘is growing exponentially and is enviably positioned to keep that momentum’, noted AJ Bell analyst Danni Hewson.

Deepinder Goyal, Zomato CEO and founder, has said the firm will ‘focus on 10 years out and beyond’ and will not alter its course for short-term profits at the cost of long-term success.

Zomato earlier said it will use the fresh IPO funds to improve its delivery infrastructure and acquire more users.

Its rivals in India include major SoftBank-backed local player Swiggy and Amazon.com’s food-delivery service.

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