Breakingviews

Zomato’s IPO dish arrives dangerously hot

3 minute read

A delivery worker of Zomato, an Indian food-delivery startup, rides her bicycle along a road in Kolkata, India, July 13, 2021.

MUMBAI, July 23 (Reuters Breakingviews) - Shares of Indian food-delivery company Zomato (ZOMT.NS) opened up a stunning read more 60% on Friday after its stock-market debut was brought forward with the sale already 38 times oversubscribed. The first-day pop leaves the money-losing company’s valuation looking dangerously frothy.

Zomato was already turning up the heat by pricing its initial public offering at 23 times its pre-pandemic sales for the year to March 2020 - even higher when extrapolating from the nine months of results through March 2021. It now trades at 37 times its trailing top line, compared to 15 times for DoorDash (DASH.N) and a 9 times multiple for China’s Meituan (3690.HK).

The company’s growth is so-so, it faces competition from rivals like SoftBank-backed (9984.T) Swiggy, which on Tuesday announced a $1.25 billion fundraising, and bigger restaurants are turning to services that don’t charge commissions. Profitless companies in India are required to sell more of their IPOs to institutional investors. Zomato will be a high-profile test of the effectiveness of that retail protection. (By Una Galani)

On Twitter http://twitter.com/breakingviews

Capital Calls - More concise insights on global finance:

Lucid Motors’ SPAC deal hits loopy roadblock read more

Twitter has online ad wind at its back read more

Domino’s Pizza party outlasts the lockdown read more

Lynch’s U.S. legal woes cast shadow on Darktrace read more

Visa continues M&A run with new FX punt read more

Editing by Antony Currie and Katrina Hamlin

Breakingviews
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

More from Reuters