A lot is being made about Zomato’s investments, clearly indicating that it plans to deploy about $1 billion over one to two years. People are drawing a correlation and comparison with Info Edge, the first investors in Zomato. But while Info Edge invested from profits, Zomato is deploying the money raised from the IPO and putting it into these businesses. As a minority shareholder, how should one look at this diversification?
First of all, Zomato is not doing anything unusual. This was part of their user proceeds which form part of their prospectus when they went for listing. They have disclosed in their DRHP that they will use part of the IPO money for expansion. But my fear here is that this is a company which is going into deeper losses and is expanding. I do not really understand a lot of these modern day IPOs like Paytm which barely scraped through yesterday. A lot of them have not turned profitable so far. So it remains to be seen, how they will do going forward because if you can keep taking money from investors or more debt and keep expanding by acquiring more and more businesses, at some point you have to turn profitable.
Amazon proved it in the US; not many Indian companies have done it so far. In fact, I was just joking about this on Twitter yesterday that one such experiment was tried by Harshad Mehta in ‘92 where he kept taking money and kept expanding by buying more stocks. That startup clearly failed. I do not know where this one goes but as an investor you should be wary of investing in a lot of these modern day new-age IPOs, because they have not seen market cycles before. They are just about getting listed in a very frothy market. So, , let us see where they end.
But one point I would like to make is that the Indian market is a rank outperformer today while markets around the world are marginally in green or flattish. Indian markets have far outperformed all their global peers this year. From the beginning of this year till now, Hang Seng is down by 20%, Indian markets have even beaten their counterparts in the US, a very matured market. But we have to come back to reality with most of the other markets.
Have you been a subscriber to any of these recent IPOs?
No, no, no. I am still struggling with the guys who are already listed and so nothing there although I will say that between Paytm and PolicyBazaar, if I had to put my money anywhere, it has to be PolicyBazaar. On Paytm, I can tell you that we may not see the kind of listing gains that we have seen with a lot of other IPOs. Also, since the book is closed, I can disclose that there have been market makers who called us saying we still have 2,000 shares from the pre IPO period. Are you happy to buy them at Rs 2,000? The upper price band is Rs 2,150. So with that kind of subdued demand, I would be really surprised if there is any frenzy.
Also, with these kind of things it depends on how the markets are behaving on the day of the listing, but frankly Paytm is going to struggle. It is a very good app but there are a lot of players already in those businesses and somebody was making the point that for customer acquisition, they will eventually be relying on banks who hold these customers. So I really do not know what their grand plan in terms of growing profits will be. At this point, I do not find anything very exciting in Paytm. And as I said there is absolutely no demand there.
PolicyBazaar is doing well. So I have not really looked at valuations, I have not really looked at valuations of stocks these days at all if truth be told but PolicyBazaar as a business is much nicer.
