Zomato’s recent milestone as the first new-age company to join the 30-share Sensex, replacing JSW Steel, marks a significant achievement not just for the company but also for India’s burgeoning startup ecosystem. As part of the $5.2 trillion Indian stock market, Zomato’s inclusion is a testament to the shifting dynamics in the corporate landscape. Let’s delve into the company’s performance, market impact, and investment prospects.
Zomato Joins the Sensex: What It Means
Zomato’s induction into the Sensex—which tracks the top 30 companies by market capitalization—has positioned it with a weightage of 2.77%, making it 12th among the components. This ranks it ahead of household names such as Hindustan Unilever, Maruti Suzuki, Asian Paints, and Nestle. Here’s a quick snapshot:
| Company | Market Cap (₹ Cr) | Sensex Weightage (%) |
|---|---|---|
| Zomato | 2,64,606 | 2.77 |
| Hindustan Unilever | 2,45,000 | 2.56 |
| Maruti Suzuki | 2,35,000 | 2.45 |
Stock Performance at a Glance
Since its IPO debut in July 2021, Zomato’s stock price has soared 3.6 times, climbing from ₹76 to its current valuation of ₹274. Despite a minor 3% dip on the day of its Sensex inclusion, market analysts remain optimistic about its future, buoyed by:
- Anticipated inclusion in the Nifty200 Momentum 30 Index by December 30.
- Increased weightage in the Nifty Next 50 index in January.
- Potential induction into the Nifty 50 index by March.
2024 Stock Price Movement
| Period | Stock Price (₹) |
|---|---|
| January | 120 |
| June | 180 |
| December | 274 |
Financial Snapshot
Zomato’s revenue growth trajectory is impressive, expanding from ₹466 crore in FY18 to ₹15,855 crore in FY24 (TTM). However, challenges persist in profitability:
| Metric | FY24 (TTM) |
|---|---|
| Operating Profit | ₹540 crore |
| Net Profit | ₹761 crore |
| ROE (%) | 1.12 |
| Debt-to-Equity | 0.05 |
Although nearly debt-free, Zomato’s low return on equity (ROE) and high price-to-earnings (P/E) ratio of 357 suggest that investors should exercise caution.
Growth Catalysts
- Diverse Revenue Streams:
- Food Delivery: Contributes 70% of revenue.
- Quick Commerce: Accounts for 24% via Blinkit.
- Dining Out: Provides 6% of revenue.
- Tech-Driven Operations: Zomato uses advanced AI and data analytics to enhance customer experiences and streamline operations.
- Market Positioning: With its inclusion in multiple indices, Zomato is set to attract passive fund inflows worth $513 million (approximately 15.1 crore shares).
Key Challenges
- Premium Valuations: Zomato’s stock trades at 11.4 times its book value.
- Profit Margins: Thin profitability remains a concern, with a modest ROE of 1.12%.
- Regulatory Hurdles: A ₹400 crore GST liability notice adds to the uncertainties.
Investor Outlook
Despite high valuations, analysts suggest a ‘Buy’ rating, citing Zomato’s robust growth prospects and strategic diversification. Investors should, however, remain mindful of its profitability and valuation metrics. The company’s expansion into Blinkit and Hyperpure highlights its commitment to strengthening revenue streams.
Investment Advice: Prioritize long-term gains over short-term market fluctuations. Conduct thorough research or consult a financial advisor for tailored investment decisions.
Conclusion
Zomato’s entry into the Sensex symbolizes the evolving nature of India’s stock market, emphasizing innovation-driven companies. While the journey ahead is not devoid of challenges, Zomato’s strategic initiatives and market positioning make it a pivotal player in the Indian economy.
Disclaimer: This content is for informational purposes only and does not constitute financial advice by finguys. Always consult a certified financial advisor before making investment decisions.