Zomato’s share made a fresh all-time-high last week as it might be witnessing huge buying from foreign funds:
The company has plans to own the inventory at their quick commerce arm Blinkit, which they mentioned in their Q2 concall. For this to be allowed, they must bring down foreign ownership below 49% as per the Indian laws - confirmed by management.
As of Sep 2024, foreign ownership in the company stood at 52.53%. But the company in last 10 days has pursued 2 major corporate actions to bring it down:
QIP for domestic institutions: Company issued ~34 Crores fresh equity shares to domestic buyers and raised $1 Bn on 29th Nov 2024 which helped the company bring the foreign ownership to 50.23% as per BSE data.
Allotment of ESOPs to Foodie Bay Employees Trust: Company issued ~48 Crore equity shares under ESOPs Plans of 2018, 2021, 2022 and 2024 on 2nd Dec 2024 to its Trust which helped the company bring the foreign ownership down to 47.75% on that date. This happens because ESOP shares allotted to an Indian trust would add to the domestic ownership.
So while the ownership is already below 49%, the issue is, RBI has something known as ‘cut-off points’ for ceiling limits of foreign investments in Indian companies which they check on daily basis and is fixed at 2% lower than the actual ceiling i.e. 47% in case of Zomato. Once such ceiling is breached, all new trades by foreigners to buy pass through RBI’s approval. So incase they get the approval, foreign money buying Zomato’s share would immediately come to an halt as their ownership is already nearing 49%.
This is exactly what could be prompting multiple foreign fund houses to immediately buy the shares from the market - else they might not get a chance to do so in upcoming months.
And even if RBI’s capping doesn’t take place, decrease in foreign ownership % implies company might get higher weight in global index including MSCI & FTSE which would could again bring big foreign buying in the stock.
Incase you have another school of thoughts, shall be eager to known about the same!
This foriegn holding issue will always remain a overhang on Zomato since Zomato’s proprietor’s holding is very low. All shareholding remains with DII, FII and Individual investors and they will not take Buy/Sell call based on Zomato’s plan. They will simply look for returns/valuation etc.
Zomato’s CEO, Deepinder Goyal, states that the company’s culture is to embrace disruption and constantly innovate. Zomato’s mantra is, How do we disrupt our own businesses?
But as retail investors, how can we confidently say, “Yes, Zomato seems to be an innovator”?
Innovation is the process of introducing new ideas, methods, products, or services that are novel and useful. When any company claims, We are innovators, it must be reflected in all its actions. Innovation is not confined to a laboratory; it is a mindset.
From the perspective of a public market investor, do we see any signals that Zomato is doing things differently? Yes, here are a few observations:
They invite and conduct conference calls differently.
They pre-register participants and engage only marquee investors during the calls.
Their shareholder letters are novel and useful.
Their QIP letter says - The meeting of the Committee commenced at 11:50 p.m. and concluded at 11:58 p.m. They concluded meet in 8 minutes of raising Rs. 8500 cr. One can imaging how timely and accurately those meeting may have conducted.
Nothing to buy or sell here—just sharing my thoughts, as the Indian market rarely sees such companies or entrepreneurs.
Accumulated the stock in recent correction, average 252…. Am confident that Zomato will maintain and even strengthen its leading position amidst this rising competitive landscape.
Zomato is simply shifting consumer surplus to producer surplus. Once the equilibrium is reached, growth will stagnate, and all inflated ratios currently justified by so-called growth will collapse to normal levels. It’s absurd that Zomato, a mere trader selling products from brands like Hindustan Unilever (HUL), is valued higher than HUL itself—a manufacturer with decades of proven value. How long can this illusion last?
The market is blindly chasing growth while ignoring fundamental value. If Zomato falls, it could take India’s fragile startup ecosystem down with it. I may be wrong, and I sincerely hope I will be wrong because the consequences of a collapse would be far-reaching.
I feel the same.
Majority of these start-ups are trading at astronomical valuations. Just 1 earning disappointment is enough for the valuation to plummet.
Don’t agree with your comment of ‘mere trader’, if that was the case why so many big players (Amazon, Flipkart, Relince, Tata) attempted to capture QC and failed?
Zomato is a fantastic company and an innovator who is solving last mile issue at so much ease, capitalising on consumer behavior and growing sales/profits on steroids.
Mega thesis - Market leader in serving largest and fastest growing middle class population in the world, while labour cost is lowest in the world. Covid was a silverlining when people even in T2 cities developed habit of home delivery, wfh will remain in T1 and hence QC/food delivery trend will keep growing and growing.
Biggest moat for Zomato is it’s streetsmart management having proven track record of growing and capitalising on this mega trend and made food delivery and QC a household habit which is so so difficult to break!!! Zomato is now way ahead of Swiggy, clearly a force to reckon as this mega demand trend is secular and it’s about time for them to monetise.
My friend, it’s not so much about product, but more about service and their service leadership is probably comparable to HUL in product segment.
In terms of valuation, their EBITDA in a years time won’t be too different than dmart while it’s EV is below dmart.
Zomato’s valuations are obviously stretched but calling it a “trader” is short sighted imo. Its a consumer tech company, and I firmly believe it’s going to capture a non trivial percentage of spending from the top 10-20 % Indians in the coming years. You can see it in their evolution : food delivery, quick commerce, expanding qc to traditionally e commerce products, district and now their private food delivery labels. Nothing is stopping them from launching their own labels on blinkit for everyday items, something which zepto is already doing.
India has yet to experience a proper bear market in the last five years, but Zomato has already shown its vulnerabilities. It only reports top-line growth, with no real progress on the bottom line—calling accounting tricks “growth” doesn’t fool anyone. As a balance sheet investor, the key question is whether this growth is sustainable. Sure, there’s top-line expansion, but what about the valuation? When Zomato was listed, it pitched a story of cloud kitchens disrupting the restaurant business, but when the 2022 mild bear market hit, the stock tanked 65% in just six months. Now, they’re spinning the Blinkit growth story.
The truth is, in Zomato’s case, you can pile up all the good stories you want, but it only takes one bad story to bring the whole thing crashing down.
The truth is, Zomato can only increase profitability by raising prices—not by cutting costs, since it can’t significantly reduce the buying price. That’s why I call it a trader’s game. The bigger problem is, if Zomato keeps hiking prices, who’s going to buy? Consumers are all about discounts, and without them, Zomato has nothing to offer. No discounts, no money.
There is already a bottom line, the company is profitable 5 percent margin from 2% in past quaters and 3 percent ttm you can see for yourself on the balance sheet they are a software service not a trader plus they have multiple revenue streams be it blinkit or food delivery ( market leader in both) and margin is most likely to sustain as it is a convenience based margin ( someone other than you brings your order while you just have to select food from a multitudes of restaurants and pay by clicking on your phone - viola margin) valuation is chased by growth not the other way around. Only pain point is other players seizing market share from zomato but it already is way ahead first mover advantage to swiggy and zomato good night
Think about another lockdown coming down the way lets say HMPV where will you get your supplies from as far as I remember food deliveries were going on during covid
Indian tech based solution companies are traders while real growth is in USA apple meta tesla Am i right ? Who knows just wait for q3 results rather than speculation
Zomato might have the strongest balance sheet. Close to ₹21000 cr in cash + investments (adding 8500 cr QIP money as well) and zero debt on its book. Apart from reliance, Zomato can virtually kill the competition if it starts doing the same tricks like Zepto of deep discounts and cashbacks. Zomato/blinkit does not play like it and still has been able to be a leader among the group and profitable!. Plus the TAM for quick commerce is so big in India if you think. They are operational in what 35-40 cities and town in India whereas total cities + towns are > 4000. it really is just bet on the management. Smart people will win the race in a profitable way. Just my opinion, no recommendation.
This is exactly what could be prompting multiple foreign fund houses to immediately buy the shares from the market - else they might not get a chance to do so in upcoming months.
