Zomato eats up investors' wealth by Rs 88,000 crore

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Express News Service

After Paytm, food delivery platform Zomato is burning investors’ wealth like no other stock. The shareholders of Zomato have lost about Rs 88,000 crore following a 65% crash in the stock from its all-time peak.

Zomato stock on Friday hit a new all-time low of Rs 57.65, a sharp fall of another 6% during early market hours. Post this fall, the market capitalization of Zomato came down to Rs 45,381.69 crore, its lowest since listing. This was exactly Rs 87,732.69 crore lower than its peak m-cap of Rs 1,33,144.38 crore in November 2021 when the stock had zoomed to an all-time high of Rs 169.10.

By closing, shares of Zomato witnessed some recovery and closed the session at Rs 60.50 a piece with an m-cap of Rs 47,625.19 crore.

At present, shares of Zomato are trading about 20% lower than their issue price of Rs 76. In July last year, Zomato made a staggering debut on the stock exchanges. Shares of the food-tech firm opened at Rs 116 on the BSE, a premium of 53% over its issue price of Rs 76.

However, the loss-making company is having a nightmare run in 2022 as its share prices have crashed over 57% so far this year.

“The current scenario of rate hikes has severely impacted tech stocks as investors have realized that the profitability and cash flows are more important than just revenue growth and their sky-high valuations aren’t sustainable. Similarly in India, Zomato dipped to a record low. The company is still a loss-making one, and it is expected to break even in terms of operating profitability by FY24, the company was demanding an FY21 P/S multiple of 29.9x during its IPO which was high compared to its global peers, hence, a reality check has led to such severe correction,” said Santosh Meena, Head of Research, Swastika Investmart.

It is unlikely that Zomato shares will reach anywhere near its 52-week high in short term. Recently, BofA Securities downgraded the rating on Zomato from ‘Neutral’ to ‘Buy’. It also cut the target price from Rs 115 to Rs 80.

The brokerage said that in the current rising interest rate scenario, investors are focusing more on profitability rather than revenue growth and that Zomato continues to be a loss-making company that focuses on revenue growth.

Paytm is the only other loss-making listed startup that has destroyed investors’ wealth more than Zomato. On Friday, Paytm closed at Rs 567.90 with an m-cap of Rs 36,848.35 crore. Its pre-listing m-cap was over Rs 1.39 lakh crore.

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