Book partial profit if Zomato lists at over 30% premium

NEW DELHI: Euphoria around the Zomato stock may continue to sustain even after listing, which reports say is scheduled for Friday. However, analysts believe it would make sense to book partial profit if there is a decent listing gain.

The IPO of the food aggregator saw massive interest from retail and institutional investors with 40 times subscription. That means investors bet a total of Rs 2.13 lakh crore on the Rs 9,375 crore issue.

“We are expecting Zomato to list at 20-25 per cent premium to issue price. We recommend booking partial profit if that happens. Hold the remaining allotted shares for the long term, as the company has been gaining market share consistently over the past four years,” said Asha Jain, Research Analyst at Hem Securities.

In the unofficial market for unlisted shares, known as grey market, Zomato’s unlisted shares are changing hands at around 30 per cent premium. Grey market premium is often considered a good indicator of possible listing gains.

Zomato’s entry on Dalal Street has opened the doors for other new-age tech-driven startups. Paytm, Policybazaar and Mobikwik are some of the names that have already filed papers for IPOs.

The massive interest seen in the Zomato IPO also showed that investors are not very concerned about the company’s current loss-making status. This has also encouraged other loss-making businesses to venture into the share market.

Veteran value investors, including Rakesh Jhunjhunwala and Ramdeo Agrawal, have said they would not invest in such ventures and rather try to make money in some other proven businesses. However, that is not discouraging other analysts.

“Losses are a concern, but investors are hoping that such companies will come into profit in 2-3 years. If Zomato fails to show any growth in, say, user base or margins, that will be a big issue,” said Vinod Nair, Head of Research at Geojit Financial Services.

However, the likelihood of the latter happening are less, said analysts. Hence, the stock has ample growth opportunities. Nair refrained from setting any price target for the stock at this stage.

“If there is a market correction, then it will also come down. But if the market remains flat or keeps rising, stocks like Zomato will continue to outperform. One of the big positives with Zomato is that it would have quite a bit of cash on its books, which will give it strength to grow over the next two years,” said Nair.

Lately, many companies have entered the market without any peers. IndiaMart InterMesh, Affle India, IRCTC, Nazara Technologies, MTAR Technologies and Easy Trip Planners are some of them. Many of them have surged rapidly post listing.

Some have even doubled investor money on the listing day itself. Chemcon Specialty Chemicals (114 per cent listing gain), Happiest Minds Technologies (111 per cent), GR Infraprojects (103 per cent), Route Mobile (102 per cent) and Indian Railway Catering And Tourism Corporation (101 per cent) are some of the recent names the doubled investor money at the opening tick.