The launch of food delivery major Zomato's IPO has generated interest within the investor community and beyond. While the discussion surrounding Zomato has largely been positively buoyed by the company's brand, market experts have a mixed opinion on the prospects of Zomato's stocks.
Most of it can be attributed to the fact that the company is still incurring huge losses and it is predicted that the downward momentum will continue given its 'significant investments' to prime pump its growing business.
Although the cash burn has significantly dropped in the last few quarters, valuations in the grey market have nose-dived ever since the food aggregator filled its Red Herring Prospectus with the regulator. One of its biggest investors, Info Edge, plummeted in trade yesterday by about 5% and is trading flat today.
Analysts remain cautious on how to approach this one-of-a-kind listing and believe there are reasons to compare this with the 2000s dot com boom which drained out much of investor wealth at the beginning of the century.
Hemang Jani of Motilal Oswal Financial Services told ET that a bull market motivates investors to grab anything, which has a good brand and an exciting story to it. He said that initial listing gains are expected but thereon it may be a different story. Many of Hemang's peers also echo the same view and agree that weightage to loss making company has traditionally been tepid.
However, there are few who believe that after a long period, opportunities in the new age digital businesses have emerged whereby investments are set to channelise and stocks such as Zomato are here to stay for decades if not more.
Jyoti Roy, DVP - Equity Strategist, Angel Broking, told Moneycontrol that though valuations look expensive, profits may zoom in the coming years because of factors like barriers to entry, growth opportunities in rural/semi-urban areas, and a strong delivery network (approximately 1,70,000 partners).
Nonlinear growth prospects have also given analysts a reason to recommend a 'subscribe'. It would be interesting to see how the IPO plays out since it will have a cascading effect on similar internet companies.