Zomato has made a tremendous entry in the stock market today on 23rd July and investors are in profit as compared to the IPO price. However, some valuation gurus are treating Zomato as an overpriced stock and some analysts are advising investors to book profits. Ashwath Damodaran, one of the world’s top valuation gurus, believes that the stock price value of Zomato should be Rs 41, which is much lower than the listing price as well as the IPO price.
Damodaran, Professor of Finance at New York University Stern School of Business, believes that the stock of loss-making company Zomato is very expensive. With the listing on Friday, Zomato’s shares had reached a premium of over 82 per cent over the IPO price. On the first day in the market, the share price of Zomato had reached Rs 138.90 against the IPO price of Rs 76. It was opened at a price of Rs 116.
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Big companies left behind in terms of market cap
Due to strong entry, Zomato’s market cap has crossed Rs 1 lakh crore and thus it has left behind even profit-making companies like Tata Motors, Vedanta, Indian Oil and Mahindra & Mahindra. On the other hand, the loss-making company Zomato is relying on investors to continue the business. Only last week, Big Bull Rakesh Jhunjhunwala had talked about investing in other established businesses instead of investing in Zomato.
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This is the opinion of experts about Zomato
- According to Damodaran, Zomato’s business model is neither innovative nor ground-breaking. The main reason why investors are attracted to this stock is because of its core market in India, which has a lot of growth potential right now. According to Damodaran, the expansion of food delivery service in India is still very less compared to countries like America and China. In such a situation, there is a lot of potential for the growth of online food delivery segment in India. Professor Damodaran is currently considering Zomato’s stock price to be too high as according to his calculations it should be Rs 41 per share. However, he says that if there is a further decline in it, then it can be invested in it.
Professor Damodaran has made a calculation that in the next 10 years, the online food delivery market in India will be worth $ 4 thousand crore (Rs 298 thousand crore) and if Zomato’s stake in it is assumed to be 40 percent, then its equity is about $ 39.4 thousand crore. (Rs.39400 crore) which will be equal to Rs.41 per share. He has assumed in his calculations that only Zomato and Swiggy will be in this sector for the next 10 years, although Amazon is also increasing its foothold in this sector.
- According to Gaurav Garg, Head of Research, CapitalVaya Global Research, if the stock is listed at a higher price than expected, then investors should sell some shares and book profits. If there is a re-investment opportunity, then you can buy again.
- INDmoney has said in one of its reports that some profits should be booked and the remaining part can be retained for a long time. According to IndMoney, the financial position of the company will definitely improve in the coming few years. Zomato’s growth prospects are looking good in the coming years due to urbanization and convenience.
(Article: Kshitij Bhargava)