Bull Vs Bear! Zee Business brings exclusive research on Zomato shares; know why some FIIs are for it while others against it!

You can love it or hate it but cannot ignore it. Food delivery app Zomato shares have never been out of attention. There is a divergent view on the new age companies with many in favour of this class of stocks for its novelty and growth potential while others being sceptical because of the business model and valuations. 

In today's edition of Bull Vs Bear, Zee Business' Kushal Gupta and Varun Dubey tell why Foreign Institutional Investors (FIIs) are a divided lot on Zomato stock and hold a bullish and bearish view simultaneously.  

Dubey said that the long term prospect for Zomato remains strong despite company incurring losses. He said that the company has managed to trim its losses in the previous quarter. Apart from this, Zomato is a cash-rich company with approximately Rs 12,500 crore worth of cash and this augurs well for it. Cash-rich companies always receive good valuations, he said explaining why many FIIs remain bullish.

Meanwhile, Gupta said that Zomato’s valuation is higher than global company DoorDash and pointed out how high valuation should not be confused with the right valuation. 

While, the losses for the company reduced in Q3, they have increased from Rs 110 crore to Rs 490 crore, Gupta said. The operational numbers have also gone bad while the current share price have  have gone below the issue price. All this reflect a bearish mood of FIIs on this stock.

Dubey, however opined that growth is bound to follow because it is a market leader in India in this segment with a lion share at 45- 47 per cent. The food delivery sector alone has good growth prospects, he added. 

The food delivery sector has just 8-10 per cent penetration in the Indian market versus global average of 50-60 per cent. This offers huge scope of expansion for the sector by 5 to 6 times in India. 

A report by CLSA said that the food delivery sector is expected to grow across the world and any investment in India cannot be contemplated without considering Zomato, Dubey said.

However, Gupta was of the view that any investment that would come would be based on the bottom line of the company. Meanwhile, an investor will look at the dividend received, he added. 

Zomato does not enjoy the monopoly as Swiggy is a top competitor in this segment, he further added. As Swiggy is also investing in Instamart, the competition is increasing. 

Moreover, the companies listed on Zomato and Swiggy are launching their own delivery app as well, he pointed out.

Dubey countered it by saying that only these giants have a grasp on the customer base. Grofers has also bought shares in Zomato. And the company also has started facilities like pay later. 

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