As the initial public offer of Zomato opens today, Zee Business Managing Editor and the market guru Anil Singhvi explains that the investors with huge risk appetite and long-term vision should subscribe for the food delivery aggregators IPO. The three-day offer begins from today i.e. July 14-16, 2021.

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Singhvi says, this is one of the unique companies (start-up), all set to list on bourses. He said that Zomato is the first such company that will be listed with an unusual business model.

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Positives

Zomato has a unique business model and the market has always loved such companies, it has growth potential as at present only 7-8 per cent of the market is accessed in India, Singhvi mentions, adding further that it doesn’t have any assets, although there is a platform for business — customers, restaurant and cloud kitchen.

The managing editor mentions, Zomato is a cash-rich start-up, as it has Rs 3031 crore in cash and liquidity investments, in addition to over Rs 9000 crore from IPO. These proceeds will mostly be used for acquisition or inorganic growth or expansion, the company has also mentioned the same in its DRHP paper too.

Negatives

Zomato has huge competition from Swiggy and Amazon, as the latter has lately started its food delivery services in Bengaluru with an active 62 pin codes so far, says the market guru, while terming Amazon as an Elephant which is difficult to fight with but "not impossible", he said.

The food delivery aggregator is still a loss-making company and would at least require three-four years to become profitable, Singhvi predicts, he affirms the company will at least take a minimum of two years to come into profits. 

Zomato reported profits last year as they cut their advertisement expenses to Rs 527 crore in FY21 from Rs 1338 crore in the previous year, says the market guru, pointing out further that how far the start-up will keep its ad expenses low in the rope-tight competition.

Recommendation

The market guru terms, there is a tussle between heart and mind with respect to Zomato IPO, where the former goes with a unique business model and brand value, while the mind is with the balance sheet and profitability concerns.

Singhvi suggests, the investors with a high-risk appetite should invest with a long-term vision that too with a small investment amount, as the valuations of the company are not cheap. He mentions, it’s better to invest in IPO only when there is a listing gain of at least 20-25 per cent visible.