Much is being done about Zomato’s investments, making it clear that it plans to deploy around $ 1 billion over one to two years. People correlate and compare with Info Edge, Zomato’s early investors. But while Info Edge invested from the profits, Zomato is deploying the money raised during the IPO and putting it in these companies. As a minority shareholder, how to consider this diversification?
First of all, Zomato isn’t doing anything unusual. It was part of their users’ product that is part of their prospectus when they went to listing. They revealed in their DRHP that they would use some of the IPO money for expansion. But my fear here is that this is a business that is sinking into deeper losses and growing. I don’t really understand a lot of these modern IPOs like Paytm which barely made it yesterday. Many of them have not become profitable so far. So it remains to be seen how they will do in the future, because if you can continue to take money from investors or more debt and continue to grow by acquiring more and more companies, at some point given, you must become profitable.
Amazon has proven it in the United States; few Indian companies have done so so far. In fact, I was joking about it yesterday on Twitter that one such experiment was attempted by Harshad Mehta in 1992, where he continued to take money and grow by buying more stocks. This start has clearly failed. I don’t know where this one is going, but as an investor you should be wary of investing in a lot of these modern IPOs as they have never experienced market cycles before. They are about to be listed on a very sparkling market. So let’s see where they end.
But one point I would like to stress is that the Indian market is outperforming today as markets around the world are slightly in the green or flat. Indian markets have significantly outperformed all of their global peers this year. From the beginning of this year until now, Hang Seng is down 20%, the Indian markets have even beaten their counterparts in the United States, a very mature market. But you have to come back to reality with most other markets.
Have you been subscribed to any of these recent IPOs?
No no no. I still struggle with the guys who are already listed and therefore nothing there although I will say that between Paytm and PolicyBazaar if I was to put my money somewhere it must be PolicyBazaar. On Paytm, I can tell you that we may not see the kind of listing gains that we have seen with a lot of other IPOs. Also, since the book has been closed I can reveal that there have been market makers who called us saying that we still had 2,000 shares from the pre-IPO period. Are you happy to buy them at Rs 2,000? The upper price range is Rs 2,150. So with that kind of moderate demand I would be really surprised if there was any frenzy.
Also, with this stuff it depends on how the markets behave on the day of the listing, but frankly, Paytm is going to have a hard time. It’s a very good application, but there are already a lot of players in these companies and someone pointed out that for customer acquisition they will end up relying on the banks that have those customers. So, I really don’t know what their grand plan will be in terms of growing profits. At this point, I can’t find anything very exciting about Paytm. And like I said, there is absolutely no demand there.
PolicyBazaar is doing well. So I haven’t really looked at valuations, I haven’t really looked at equity valuations these days, frankly, but PolicyBazaar as a company is a lot nicer.