The loss-making consumer technology company will be first-of-its-kind to be listed on Indian bourses and therefore, interest around the IPO is stratospheric. The hype is palpable as the Rs 9,375 crore public issue was fully subscribed on the first day of its bidding process on Wednesday with retail and foreign investors leading the bids.
In the runup to the public offering, there was much debate about the issue’s valuation. Zomato is issuing shares at a market value of close to $9 billion, making it bigger than the combined market capitalisation of quick-service restaurant companies listed on the market.
If you are wondering that the absurd valuation for a company that is yet to turn in a profit in its over decade long existence is the bizarre part, you may be surprised.
The most bizarre aspects of this historic episode in Indian capital market were to be found in the anchor investor book that was disclosed on Tuesday evening.
Zomato raised over Rs 4,000 crore from more than 180 institutional investors, which include marquee sovereign wealth funds, foreign institutional investors, local life insurers and domestic mutual funds.
Among the domestic mutual funds schemes that have invested in the IPO in capacity of an anchor investor include a value opportunities fund, a smallcap fund and a dividend yield fund. Yes, somehow Zomato is the unicorn that seems to satisfy the investment mandate of truly every style of investing.
Take for example, the ICICI Dividend Yield Equity Fund. The scheme bought 289,575 shares of Zomato during the anchor issue. As per the scheme’s offer document, it will “predominantly” invest in stocks that yield dividends and have a “track record and consistency in dividend payments”.
Zomato turned in a loss of Rs 2,385 crore for 2019-20 and Rs 682 crore for the nine-month period ended December. While some analysts expect the company to break even as soon as next financial year, some say it is unlikely to turn positive on the bottom line anytime soon. Dividends are perhaps even farther away in the future.
To be sure, the scheme’s mandate allows the fund manager to invest up to 35 per cent of the corpus in equity instruments that do not yield a dividend. Looked at another way, it perhaps shows immense faith on the part of the fund manager on Zomato’s prospects or a way to boost performance given that the IPO may elicit strong listing gains on debut.
Another example of the bizarre is the investment made by UTI Value Opportunities Fund. The scheme bought 2.3 million shares of Zomato in the anchor issue. While the scheme’s mandate allows it to invest in an opportunity like Zomato, outsiders may wonder if it is aligned to the fund’s style of value investing.
It is universally accepted that Zomato by no means is a value stock. Growth stock it is for sure and analysts too have justified the rich valuations on the basis of the long runway for growth tlonhe business has, but then again value is subjective although in the case of Zomato most will argue it is not.
Other examples include HDFC MF’s Flexi Cap fund managed by famed value investor Prashant Jain. The scheme has lapped up 3.2 million shares of the company at a cost of Rs 24 crore. Again, while some may argue that Jain’s investment is another feather on the cap for Zomato, as the veteran fund manager gets his calls right more often than not, others may see a deviation from his rigid path of value investing.
Zomato’s IPO narked the dawn of a new age in India’s capital market, an age that is also as bizarre as it is titillating.
