Brokerage firms divided on Zomato’s valuation

New Delhi: As the food technology space continues to grow in India, brokerage firms are divided on the valuation of the largest food-tech firm Zomato Media Pvt. Ltd.

On Tuesday, HSBC Securities and Capital Markets (India) Pvt. Ltd raised its valuation estimate on Zomato to $700 million from $500 million, citing a growing food technology market.

Mint has seen a copy of the report.

In last six months, three different brokerages have valued the food technology firm at three extremely varied valuation levels ranging from $700 million to $2.5 billion.

Earlier this month, Morgan Stanley valued Zomato at $2.5 billion and stated that it expects the company’s valuation to touch $6.7 billion in 10 years’ time. In September, Nomura Financial Advisory and Securities (India) Pvt. Ltd valued Zomato at $1.4 billion.

These brokerages have covered Zomato while assessing the company’s largest investor InfoEdge, which runs Naukri.com.

The valuation estimates come at a time when Zomato is in advance talks with Chinese payments firm Ant Financial Services Group to raise $100-$200 million.

Gurgaon-based Zomato was valued at around $1 billion when it raised $60 million from Singapore’s state-run investment firm Temasek Holdings Pte. Ltd in September 2015.

In its latest report, HSBC estimates the Indian online food tech aggregator market to grow at a compound annual growth rate of 63% to $1.5 billion. “Key catalysts include increased investments in the last mile across players, mobile data growth, expansion beyond the top 10 cities, affordability driven by a decline in the average order value (AOV), and efforts to address supply and cuisine gaps,” the report stated.

“…we raise our valuation for the business to $700m from $500m and expect Zomato to benefit from medium-term consolidation in India’s online food tech space.”

Two years ago Zomato and its investor Infoedge disagreed with HSBC’s $500 million valuation stating that the restaurant listings company will become profitable “very soon”.

In April 2017, Zomato posted an 80% jump in revenue from a year ago to touch $49 million due to growth in advertisements and the food delivery business. However, the company is yet to be profitable.

The food-tech space in the country is again heating up with new entrants such as UberEats and with Ola’s recent acquisition of struggling Foodpanda India.

Ola also committed to invest $200 million into the acquired entity to venture into the online food ordering space after it shut down Ola Café in 2015 after a short pilot.

Launched in 2008, Zomato has raised roughly $225 million in capital. It counts Singapore’s Temasek Holdings, Vy Capital. Sequoia Capital and Info Edge as its investors.

Zomato competes with Bangalore-based Swiggy (Bundl Technologies Pvt. Ltd). In 2015, Zomato, which had stayed away from offering food delivery services, was forced to introduce food ordering on its platform after Swiggy’s aggressive expansion into the category.

Zomato’s fight with Swiggy is expected to be costly for both the companies—and Swiggy’s fund-raising shows as much. Since starting out in 2014, Swiggy has already raised over $160 million in equity and debt including $80 million in May from Naspers Ltd and others. The company is in talks to raise its next round.