In an indication that the stock market is ready to bet on India’s fledgling tech start-up ecosystem, food delivery and restaurant discovery firm Zomato’s shares made market debut with a spectacular listing on Friday. Zomato’s shares listed at ₹116 on the National Stock Exchange (NSE), at a 53 per cent premium to its issue price of ₹76 per share.

The company's stock zoomed further post listing, hitting the upper circuit of 20 per cent at ₹138, up 82 per cent from its issue price on the BSE. It closed the day at ₹125.85, up ₹49.85 or 65.6 per cent over the IPO price.

“The tremendous response to our IPO gives us the confidence that the world is full of investors who appreciate the magnitude of investments we are making, and take a long-term view of our business,” said Deepinder Goyal, who founded Zomato in 2008.

Many challenges ahead

There are multiple reasons why investors gave big such a thumbs-up to Zomato. According to Aswath Damodaran, Professor of Finance at the Stern School of Business, NYU, although “Zomato is a money-losing, cash-burning enterprise now, it has immense market potential and is on track to delivering on a viable business model. It will face plenty of challenges on that path, both at the micro level (management, competition) and at the macro level (economic and political developments in India). I believe that the company is currently over-priced, given its potential, but I would have no qualms investing in the stock, if the price drops in the near future, with the full understanding that this is a joint wager on a company, a sector and a country.”

Palka Chopra, Senior Vice-President, Master Capital Services, said the food services industry contributes only about 8-9 per cent to the food market in India compared to 40-50 per cent in the US and China. “Therefore, Zomato has a lot of room for growth, but a lot of the listing gains can be attributed to current investor sentiments," he said.

S Ramesh, Managing Director and CEO, Kotak Mahindra Capital Company, said that the stellar debut of Zomato on the bourse after attracting robust subscriptions is a testimony to the fact that investors “are willing to bet big on new-age technology companies that have the characteristics of a disruptive business model.” With growing internet penetration and the smartphone userbase increasing by the month, the entire private digital ecosystem will enable wealth creation and further deepen our capital market in the coming years,” he said.

At the closing price, Zomato's market cap stood at ₹98,731 crore. This is higher than some of India's marquee blue-chip companies. In terms of market value, Zomato overtook Vedanta, Mahindra & Mahindra, Adani Total Gas, ICICI Prudential Life, Dr Reddy's Lab, Coal India, SBI Cards, Hindalco Industries, Berger Paints, Britannia Industries, DLF, Ambuja Cements, Indusind Bank, Cipla, Eicher Motors and Marico.

. “We are going to relentlessly focus on 10 years out and beyond, and are not going to alter our course for short-term profits at the cost of long-term success of the company,” Zomato’s Goyal said.

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