Zomato vs Jubilant Food: Investors continue to suffer losses in new age companies, with some touching new lows. Thus, market expert Deven Choksi in a conversation with CNBC TV18 has emphasized the need to understand the profitability of such businesses. “There is a need to understand the situations when these companies will start making profit,” he said.
Zomato shares hit 52-week low
KR Choksi’s Choksi was referring to food delivery startup Zomato, whose board has approved a loan of $150 million or Rs 1,145 crore to Blinkit (Grofers).
Market expert’s comment comes on the day Zomato’s stock has reached 52-week low with Rs 75.6 on BSE. Earlier, it touched a low of Rs 75.8 on February 15.
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Questions are being raised on valuation
Several experts have questioned the valuations being received by new age or platform companies, which are slowly losing interest from investors. Choksi said he has “always been curious to know from the company’s side what they are doing and where they see profits coming from for themselves.”
Time taken to make profit
New age companies like Zomato are yet to start making profits. He said, “In the case of Grofers, we need to understand how exactly this distribution company can generate revenue for Zomato. It is okay to do a share swap deal and a merger. You are creating a new vertical in the company. It’s certainly acceptable.”
“If you clear the picture, trust will increase, otherwise your services may be enjoyed as a customer, but as an investor,” Choksi said.
The newly listed new age companies, including Zomato, have started with mixed earnings in 2022. For the quarter ended December 2021, Zomato reported a loss of Rs 63.2 crore with a growth of 8.6 per cent in revenue. Its revenue was Rs 1,112 crore.
Zomato has said that interest will be charged at the rate of 12 per cent on loans given to Grofers. This loan is to support the capital requirements of the company.
Profitability: Zomato vs Jubilant FoodWorks
Choksi cited the example of Jubilant Foodworks, which operates Domino’s Pizza outlets in India. He said that one out of every two new stores he owned had turned a profit within a year.
Comparing Zomato with the QSR operator, he said, “Jubilant Foodworks is comparatively more capable of making profit from the stores it has built. This boosts your confidence.”
“Jubilant’s menu is constantly changing, which is vital to stay and operate in the business,” he said.
According to Choksi, however, the stock is expensive on valuation basis. The current valuation is getting better.
Shares of Jubilant Foodworks closed at Rs 2,562.60, up 1.51 per cent on the BSE today.
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