Zomato sets the tone for all future megamarket IPOs, especially for start-up companies
The launch of Zomato IPO may go down as an important landmark in the history of Indian markets. There was a time when many Indians thought the Information and Technology sector would do more harm than good to a country like India.
Back in January 1986, when the Sensex was launched, there wasn't a single banking company amongst the constituents of the index. India's bellwether index was dominated by metals, manufacturing, and consumer goods companies. Fast forward to 2021, not only does India have some of the finest IT companies and well-run private sector banks of the world but today finance and IT together make up 60 per cent of the Sensex. The changes in the composition of the Sensex have mirrored the transformation of the Indian economy to a large extent.
In that context, Fiscal Year 2022 can prove to be an extremely eventful year for Indian markets which are at a crossroads at present. The IPO lineup for the year foretells how the composition and texture of the leading indices may look like in this decade and beyond. Will internet companies, insurers, and pharmaceutical companies dominate the Sensex (in a way, Indian markets) in the coming decades? Maybe.
Zomato has already set the tone for all future big bang IPOs, especially for start-up companies. At listing, Zomato's market cap is expected to be more than Rs 60,000 crore which is greater than the combined market cap of Jubilant Foodworks, Burger King, Specialty Restaurants, and Barbeque Nation.
Our research team has recently released a detailed report on Zomato IPO. Zomato is looking to raise Rs 9,375 crore (Rs 9,000 crore through an IPO and Rs 375 crore through OFS). This will improve Zomato's cash levels to Rs 15,000 crore, which will serve as currency for M&A (Zomato is looking to acquire a minority stake in Grofers for 100 million dollars), investments in tech & customer acquisitions, and general corporate purposes. This cash pile should easily help sustain burn rates for a good 7-9 years.
Paytm, which is expected to come up with an IPO of Rs 16,600 crore, is said to be eyeing a valuation of 25-30 billion dollars. Such market capitalization would befit that of a Sensex company.
The epitome would be LIC. India's largest life insurer may secure a spot in the top 5 most valued companies of India, on listing. These numbers aren't just mesmerizing but more importantly, they suggest that a bigger story might be waiting to unfold in the coming years. High aspirations, rich demographic dividends, and strong domestic consumption (underpinned by the burgeoning middle class) have been the prominent structural triggers for India's growth story. The Internet revolution, mobile penetration, and the emergence of world-class start-up companies in India will offer tailwinds to these megatrends.
Megamarket Trend Benefits Acquisition Strategies
- Redo/re-devise your investment strategies
- Don't get swayed away by listing gains and stay invested in deserving IPOs for the long term
- Don't buy any index stock blindly thinking that they always make a sound investment
- Conventional valuation parameters are still important but don't be constrained by them
- Internet companies are challenging incumbents vivaciously and catering to untapped growth areas. Thus, understand the underlying risks thoroughly before investing
- Data is the new oil; always see how intelligently companies are using their data
- Take the mutual fund route if you can't ascertain which stocks you should buy
True, many unicorns are still loss-making. And maybe a few of them are overrated too. At present, some experts sound more worried about their losses than excited about the opportunities galore they are targeting. Please don't forget, great stories often start with disbelief and denial.
The author is Head of Research, Ventura Securities Ltd
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organization directly or indirectly.