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Zomato IPO: What leading brokerages say

By Puneet Wadhwa
July 13, 2021 12:39 IST
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Zomato IPO is set to be a watershed moment in the Indian internet space.

Zomato’s initial public offer (IPO) is scheduled to open for subscription on July 14 and is priced between Rs 72 – 74 per share.

At the upper end of the price band of the offering, the company aims to raise Rs 9,350 crore.

Most analysts have given a ‘subscribe’ rating to the issue for listing gains.

Here is how the leading brokerages have analysed the offering.



Zomato IPO is set to be a watershed moment in the Indian internet space.

While there are a lot of questions on the minds of investors with respect to the medium-term growth, profitability & cash usage, the FOMO (fear of missing out} factor should keep the excitement level high, based on investor interactions.

Management at the analyst meet sounded upbeat.

At FY20's absolute run-rate, the cash balance would suffice for 6-7 years of cash burn and building lower burn-rate, this implies as much as 10-years of cash burn.

Expansion beyond the core business is a fair possibility and there is a limited clarity on the categories which Zomato might explore and deploy capital.


We like Zomato for its 1) ability to drive network effects from the content it generates on its platform and that is a key moat that drives its relationships with restaurant partners and consumers.

This continuous engagement funnels into its revenue generating businesses like delivery and hyperpure; 2) making a quick pivot – such as expanding into food delivery by controlling the supply chain and expanding into adjacencies such as grocery delivery through investment in Grofers and; 3) focus on profitability.

ICICI Securities

Zomato is yet to turn profitable.

However, this new-age digital platform offers strong growth potential, which at present is evolving on the back of favourable macroeconomics, changing demographic profile, rising adoption of tech infrastructure.

Hence, we recommend subscribing to this IPO.

Ventura Securities

We expect Zomato's revenue to grow at a CAGR of 64.7 per cent to Rs 8,910 crore by FY24 from Rs 1,994 crore (FY21).

The IPO will improve Zomato's cash levels to Rs 15,000 crore, which will serve as currency for M&A, investments in tech & customer acquisitions and general corporate purposes.

This cash pile should easily help sustain burn-rates for a good 7-9 years.

At the upper price band of Rs 76 per share, Zomato's valuation of 5.1X FY24 EV / sales may appear optically demanding.

However, given the fledgling nature of the business, duopoly market, upside penetration potential, untapped online opportunity of the adjacent verticals, and scarcity premium, we recommend subscribing for listing gains.

Motilal Oswal Securities

Predicting Zomato's growth trajectory at this juncture is a little tricky for the next few years.

The valuation also appears expensive at 25x FY21 EV/Sales compared to average of 9.6x for global peers and 11.6x for Indian quick service restaurants (QSRs).

Though, valuing such early stage businesses on a plain vanilla financial matrix might not give the right picture and may look distorted.

Investors with a high risk appetite can subscribe for Listing Gains given fancy for unique and first of its kind listing in the food delivery business.


Zomato is on the cusp of reaching profitability and value creation, driven by 5x growth in revenues, and on the path of achieving 15% operating profitability by FY25.

This would be driven by: i) an improved market structure for the two large players, ii) faster adoption of food delivery, catalysed by the current pandemic, and iii) improved unit cost economics.

Recommend investors subscribe to the IPO, as we believe Zomato could trade at around $10 billion valuation, based on our discounted cash flow (DCF) analysis, and is implying EV/sales of nearly 11.5x/8.0x on FY23/24 revenues, comparable with peers such as US-listed DoorDash.

Photograph: ANI Photo

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