Investors are on a high, with jab sessions beginning in earnest in the UK, and expected to gradually spread worldwide soon. One clear sign of the euphoria is the massive listing gains of recent IPOs in the US. DoorDash Inc., an American online food delivery services firm, had an extraordinary debut, with a listing gain of over 80% from its issue price. The company, which posted a net loss of $149 million for the nine months ended September, listed with a market capitalization of $60 billion. For perspective: private investors had valued DoorDash at $16 billion in June. Based on the IPO pricing, the firm was valued at around $32 billion.
Indian food delivery companies could well be licking their chops at potential IPO valuations. Swiggy and Zomato are being valued at $3.5 billion and $3.6 billion, respectively, based on latest reports. Using the wide divergence between the private market and public market’s perception of valuations of internet companies these days, the latter may well value Swiggy and Zomato at well over $12 billion. According to reports, Zomato is looking at an IPO in 2021. “DoorDash’s spectacular listing should have a positive influence on the valuations of Indian food delivery companies and provides a good benchmark for their listing,” said Anuj Kapoor, managing director and head of Investment Banking, UBS India.
DoorDash is among firms that benefited from the covid-19 crisis, witnessing a significant increase in total orders, marketplace GOV (gross order volume) and revenue as people avoided stepping out due to fear of infection.
In India, though, the stringent lockdown has hurt Swiggy and Zomato, with consumers preferring home-cooked or packaged food. Moreover, there were supply-side challenges with several restaurants not functioning, migration of restaurant workers and working capital crunch. The good news is that management commentary suggests things have picked up, both in terms of orders and unit economics. “Swiggy, the market leader in food delivery, highlighted that while covid did have an impact, order volume is approaching pre-covid levels of 1.2 million per day, with positive contribution margin and the company is on track to Ebitda profitability in food delivery by 1Q21,” pointed out Jefferies India Pvt. Ltd in a report on 6 December.
To be sure, the pandemic has accelerated growth in most internet segments and valuations of tech companies are soaring. In fact, Airbnb Inc. saw a listing gain of over 100% last week. Against this backdrop, it’s not surprising that shares of Info Edge (India) Ltd, which owns a 20.8% stake in Zomato, hit a new 52-week high on Friday on NSE. The stock is now 33% ahead of the average target price of 17 brokerage firms. News reports suggest Zomato is looking to list in India. While some experts think a listing in the US markets would enable Indian companies to fetch much higher valuations, there are others who feel the Indian markets are capable of absorbing some paper. “Given the current market sentiment, positioning of domestic food delivery companies and depth of Indian markets, a listing in India too would be a viable option for such companies and fetch them attractive valuations as the domestic market can very well absorb paper worth a couple of billion dollars. Perhaps, bigger companies such as Jio Platforms Ltd may fare better by listing in the US market given the depth of the market, wider investor base and better comps available there for that sector,” Kapoor said.
This article was first published on livemint.com.