Will valuations be a parameter for Zomato IPO at all or is it one of those stocks which are a must-have in the portfolio?
These are unique stocks that get listed once in a while. A majority of people would want to participate in the growth story rather than look at valuations. At the higher end of the price band, the market cap to sales would be about 11-12 times. The company is yet to make profit at the net level.
The pandemic impacted their business for a while, but then a lot more people started ordering online food because of not being able to go out. And once people get the comfort, their subscribers would continue to increase. So it is a good consumer story in India. A bulk of the burnout has already happened. After facing a lot of competition, they have come out as the market leader in a country like India. There were a lot of others smaller players which had the first mover advantage, yet they did not gain the scale that Zomato has now. So it looks like a good story. The valuation is definitely unique. It is a first-of-its-kind listing. We have seen in the past that people are willing to pay a premium price for these kind of unique stocks. That should continue for this IPO as well.
What is the expectation from the earnings season? Which sectors may surprise us and which ones may disappoint?
We have already started seeing pre-quarterly updates. Auto is one space which could have a lot of disappointment. A lot of strong growth was reported in Q4. In Q1, we saw disruption because of the second wave of Covid. Now we are seeing some global majors like Tata Motors, which had reported very strong numbers, talking about the impact on volumes because of semiconductors.
On the positive side, cement could report strong numbers despite it being a weak quarter. With the onset of monsoon, things become slower but our channel checks suggests that May and June have been pretty good in terms of dispatches. Realisations have been pretty stable and some of the costs have gone up. Apart from that, cement will be a space which could give a positive surprise in this quarter.