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Zomato IPO: Short-Term Listing Gains or Long-Term Returns?

The buzz over Zomato's IPO continues to grip retail and institutional investors alike.

Updated
Business
2 min read

Video Producer: Shohini Bose

Video Editor: Purnendu Pritam

The buzz over Zomato's IPO continues to grip retail and institutional investors alike. Among all the opinions that are available, we try to establish more clarity with Hemang Jani, head of equity research at Motilal Oswal financial services.

One day is left before the IPO closes. How should a retail investor clear the dilemma about investing in Zomato?

Our advice to the retail investor is that this is a good issue for short-term listing gains. The main reason why we feel positive about Zomato is that there is a lot of excitement and appetite for technology start ups in next-gen businesses. The recent deals in this ecosystem have gotten very high valuations. Secondly, we are in a bull market and the average return on IPO in the past 12 months has been 58%. And if you see the last five technology-based IPOs, the return is as high as 196%.

Why do you recommend the IPO to only a certain kind of investor who have a risk appetite?

We think there is going to be a very good scope for listing gain. We don't know how much that will be. It will depend on the prevailing market conditions. Because of the nature of the business, which is at an evolving phase, we don't know how much time it will take for the company to be profitable, what kind of business model will they finally adopt. That's why it is not advisable to take a two to four year view.

In how many years would we get a clear visibility to be confident of profitability and deeper value from such investments?

It may take around two to three years for the company to show significant numbers on the profitability. If you see other such companies, for example Flipkart or Amazon, they are not focusing too much on the immediate profitability. But they are trying to build their platform for client traction and user experience. Once that is done, their platform can give returns over a period of time and there will be various ways to monetise it. Hence, at this stage, it would be more sensible to look at short-term opportunity and then as we gain further clarity, we can have our own view on it.

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