Food delivery giant Zomato’s IPO has stimulated quite an appetite among the investor class, that after the initial feedback it has advanced the issue date and increase the offer size by 20%. The offer is set to open for two days on July 14.
So what is the big deal about Zomato IPO and should you think of investing your hard earned money in primary market amidst a pandemic and an economy in slowdown?
Hindustan Times’s Vertika Kanaujia speaks to Amit Khurana, Head of Equities, Dolat Capital Market and poses all the questions that a retail investor or even a first time investor would seek answers to
Q: Why is there so much buzz around the upcoming Zomato IPO?
Amit Khurana: There are two primary factors leading to the buzz. Firstly, it’s the first significantly large listing from a truly digital space in India and it’s one of its first kinds. If you look at the ecosystem, currently available on the listed companies – you will find holding company structures, or businesses which are not as direct in terms of their brand equity with the consumers. Zomato as a brand has been very popular amongst the younger audience and with the Covid situation it has caught up with the middle-aged and senior citizens as well.
Secondly, It is becoming a priced discovery for a lot of other digital businesses as to how the market or investors at large would value this business and that will serve as a benchmark price as an experience in itself over the next few years.
Q: So what is an IPO and is it a good investment for first time investors?
Amit Khurana: IPO as the name suggest is an Initial Public Offering. There are several businesses in India which are not listed and privately held. Any listing of a company at the stock markets gives the public at large and money managers an opportunity to participate in that company as a shareholder. So through an IPO a company sells its to the public to get listed in the stock market.
So if a person wants to invest in an IPO is a personal choice. For investment hygiene first time investors should consult professional advisors and study the business and the risks involved. Accordingly one should take a fair allocation and put an overweight position is one asset. It it doesn’t work, it can significantly impact the return on the investment. So it needs to be a balanced approach.
Q: Should an investor consider heavyweight stocks or invest in start-up IPO?
Amit Khurana: It works both ways. There are businesses in India which we have never seen. The digital space is a pure merchant space. It will takes its own time to get benchmark pricing. In 1994, many IT companies got listed in India and at that point of time IPOs were a new concept all together. They took their own time be showcase relevance and today many IT companies are doing well . Then several real estate companies got listed in India between 2004-08 boom, then there was no concept of valuation at that time. But those businesses also created a significant wealth for the investors and similarly in current circumstances these companies are providing good opportunities. Now whether you want to invest money into existing businesses or the new theme businesses that are emerging is a matter of choice. However, there should be a balance of both. As the merchandise businesses are expected to grow significantly in the coming 20-30 years and offer new experience to the investors.
Q: After Zomato, Paytm is also hitting IPO market – what should an investor look for before investing in an IPO?
Amit Khurana: From a retail investor perspective three specific questions need to be asked before investing in a particular company- (1) do you understand the business they are into and how does the company make money in terms of revenue. (2) Do you understand the risk and challenges a business faces in the future and what those risks can do to the profitability and how it could impact the valuation of that. If you are not willing to live with a 20-30% downside that may come with the company then you should not be investing into these companies because equity as an asset class is very volatile. It is going to be high risk but on the other hand it will compensate for the high risk. (3) The time horizon is another significant factor. The gain on the listing can be 1 to 100% or even negative 20%. So, your timeframe has to be very clear and accordingly you should have the conviction to hold on to that time frame.
Q: We are still amid a pandemic, economy is still in recession and there is volatility in the stock market. Is it a good time to invest in the primary market?
Amit Khurana: Yes, it is a good time to invest. There are several companies hitting the market across sectors chemical companies have come in, digital businesses are coming, manufacturing entities have done very well. There would be challenges in the market at every given time, there won’t be a time without volatility. What is more relevant is the quality of business, management and other fundamental aspects that would go into. So therefore take a call. In the past there hasn’t been a single time when there weren’t attractive offers or opportunities to invest and make profits.
Q: Do you have tips for the investors on how to make maximum profits by investing in an IPO?
Amit Khurana: It remains a game of patience. There may be situations when you feel that things are not going in your favour and you may quit in panic. You should be patient while investing in equity as an asset class. Do your home work right, short-term indicators or fluctuations should not impact your long-term view about a business. Your ability to make money would eventually play out but you need to be well-informed before investing.
All you want to know about the Zomato IPO:
Food delivery giant Zomato’s IPO size is ₹9375 cr and public offer comprises a fresh issuance of equity shares of ₹9,000 crore. It is an offer for sale of ₹375 cr.
Price band for the offer has been fixed at ₹72-76 per equity share
It will open for subscription between July 14 to July 16 and the company will finalise the IPO share allotment around July 22. The funds will be refunded or unblocked from ASBA account around July 23, 2021.
The funds will be utilised for funding organic and inorganic growth initiatives and general corporate purposes.