Markets
The Zomato blitz is not quite rubbing off on investor Info Edge
Summary
The value of the firm’s investments in Zomato and Policybazaar has more than doubled since February
Why buy shares in an old, profitable internet company when the new kid on the block boasts of losses, cash burn and unseen, limitless opportunities?
On the one hand, there is a frenzy on the Street for shares of Zomato Ltd, while on the other, there is a sense of fatigue setting in for the Info Edge (India) Ltd stock, the big daddy of Indian internet firms, which runs naukri.com and 99acres.com.
While the value of investments by Info Edge in Zomato and PolicyBazaar has more than doubled since February, on the back of the Indian internet IPO (initial public offering) boom, its own shares are flat. Excluding the value of its holding in the two unicorns, its market cap has in effect declined by almost 20%.
What gives? The main factor at play is that while Info Edge demonstrated growth and leadership in its markets, it ranks low on growth potential. Zomato, which is now valued nearly 70% higher than Info Edge at ₹1.13 trillion, has, on the other hand, ceased to be viewed as a mere food delivery firm in the eyes of its investors.
Current valuations suggest investors are betting big on Zomato being a platform that delivers other services to customers, such as grocery, where it already has a toehold. And because the industry is still at a nascent stage, investors see huge scope for growth.
“Investors can now directly buy Zomato and no longer need to take exposure through Info Edge and carry the baggage of other slow-growth businesses," said an analyst with a multinational broking firm, requesting anonymity.
In February, Zomato was valued at $5.4 billion during its last private market funding round. Its market value now stands at $15.2 billion. PolicyBazaar was valued at $2.4 billion in the last private market transaction, while reports suggest an IPO valuation that’s about 50% higher. Going by the Zomato listing, the firm’s eventual valuation may end up being far higher.
In this backdrop, it is surprising that Info Edge’s shares underperformed the market in recent months, especially given the euphoria surrounding internet IPOs and its investments in the space. Some analysts said that Info Edge’s valuations were already on the higher side, leaving limited room for large upsides.
