Zomato was listed on the National Stock Exchange today after the allotment of shares was finalised post the stellar IPO. The shares of the company opened at Rs 116, a 52.63 percent premium over its final offer price of Rs 76, mostly due to huge demand from investors. The company’s IPO was subscribed to over 38 times.

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The market capitalisation of the company crossed Rs one lakh crore mark, as it stood at Rs 1,08,067.35 crore.

The start-up saw the biggest IPO ever in Indian markets. But as the price reached a high of Rs 138.90, almost double the offer price, many investors wondered whether the company was worth it.

Academician Aswath Damodaran said that the shares are currently overpriced and are “worth Rs 41”.

Damodaran calculated the share price based on the valuation of the company and its underlying business model.

“With my upbeat story of growth and profitability, the value that I derive for equity is close to 394 billion INR (about $5.25 billion), translating into a value per share of Rs 41.”

Damodaran, a Professor of Finance at the Stern School of Business at New York University, has been called the “Dean of Valuation”, and is one of the biggest experts on corporate valuation. He has written several books on equity valuation and corporate finance.

“Zomato is a money-losing, cash-burning enterprise now, but 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),” Damodaran said.

“I believe that the company is currently overpriced, given its potential, but I would have no qualms about 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,” he added.

While Damodaran suggested that the company is overvalued currently, still in a cash-burning, zero-profit system, others feel that Zomato will be a good bet in the long term.

Damodaran’s full analysis can be found on his blog.

First Published:Jul 23, 2021 2:22 PM IST