Should You Buy The Stock Of Zomato After Listing?

Shares of Zomato zoomed on listing, jumping nearly 63 per cent to trade at Rs 124, against its issue price of Rs 76.

The stock made its debut at Rs 115, reflecting a huge gain of 51.31 per cent against the issue price on the BSE. It then hit a high of Rs 138, a jump of 81.57 per cent. On the National Stock Exchange, it got listed at Rs 116, registering a premium of 52.63 per cent. Zomato's initial public offering (IPO) last week ended with a bumper 38 times subscription. While the stock made its debut at the price of Rs 115, it is currently trading at Rs 124, which is a robust 63% over and above the offer price.

Should you buy the Zomato stock now?

Says Sneha Poddar, Research Analyst, Broking & Distribution, Motilal Oswal Financial Services Ltd, "Zomato, India's leading online food delivery company, listed strongly on the exchanges today with 53% premium at INR 116/Share against its issue price of Rs76/share. Such stellar debut on exchanges led to its market capitalization crossing Rs1 lakh crore. Despite the large size of IPO at Rs 9,375 crore and rich valuations, the company saw healthy overall subscription of 38 times. There is lot of fancy for such unique and first of its kind listing in the market. Zomato with first mover advantage is placed in a sweet spot as the online food delivery market is at the cusp of evolution.

It has consistently gained market share over the last four years to become the category leader in India in terms of GOV (Gross Order Value). It enjoys couple of moats and with economics of scale started playing out, the losses have reduced substantially. Though, predicting the growth trajectory at this juncture is little tricky, but it's a good bet from long term perspective."

We at goodreturns.in believe that the stock is overpriced at these levels, as there are risks to the business as well. Some of these players have had problems with restaurants in the past. The IPO price was still reasonable, but, to buy the stock at Rs 124 is overexuberrance. We suggest investors to stay away and wait for the stock to decline to buy. Having said that, there is little doubt that the brand of zomato is solid. However, at these levels the stock is not a good buy.

Zomato IPO received good response

The IPO had opened for subscription on July 14, in a price band of Rs 72-76 per share. It closed on July 16. The company, backed by Jack Ma's Ant Group Co, is the first from a long list of Indian unicorn startups to launch an IPO. It is also the first among Indian online food aggregators. The Zomato IPO comprised a fresh issue of equity shares worth Rs 9,000 crore and an offer-for-sale (OFS) worth Rs 375 crore by existing investor Info Edge (India), which is the parent company of Naukri.com, according to the information provided in the draft red herring prospectus.

Disclaimer

Investing in stocks is risky and investors need to be cautious. Neither Greynium Information Technologies Pvt Ltd, nor the author, nor the brokerage house mentioned would be responsible for any losses incurred based on decisions made from the article. Investors are also advised caution as the markets are now at a record high. Please consult a professional advisor and avoid investing lumpsum amounts.