A look at how internet stocks performed on listing day; will Zomato follow?

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The number of internet stocks listed on Indian bourses could be easily counted on fingertips as there are only seven such companies. India’s thriving e-commerce sector which has grown mainly on venture capital and private equity money is slowly but steadily opting for primary markets to raise funds and the latest one to do so is Zomato.

Over the past one and a half decades, companies like Info Edge (India), Just Dial, Infibeam Avenues, Matrimony.Com, Indiamart Intermesh, Affle (India) and Easy Trip Planners raised money through an IPO and are the only listed companies from India’s internet space.

Listing day history

Among the listed internet media & services in India, Info Edge debuted on November 21, 2006, and delivered maximum returns to its shareholders as it listed at Rs 480, marking a 50% premium over its issue price of Rs 320. Currently, the stock is quoting at Rs 5,400.25 delivering a whopping 1,588% return to shareholders.

Second, on the list is Affle (India) that got listed Rs 929 versus an issue price of Rs 745 marking a premium of 24.82%. Even this company became darling of investors as the stock has galloped 491% to Rs 4,406.60 in less than two years time.

Indiamart Intermesh, the B2B e-commerce company, has delivered similar returns on listing day. It got listed at Rs 1,180 compared to the issue price of Rs 973,  garnering 21.27% listing gains. Even this stock turned out to be a multi-bagger as it trades at Rs 7,310 per share making investors richer by 7.51 times over its issue price in just two years.

Another stock that turned out to be a wealth creator for investors is Easy Trip Planners that has more than doubled in just four months to Rs 450 against the issue price of Rs 187. The listing gains on the stock were also decent as it got listed at Rs 206 apiece marking 10.16% returns.

Just Dial is another stock from the sector that saw 11.32% listing gains. Over 8 years,  this stock has doubled to Rs 1,072.7 per share.

Matrimony.com has been a slow performer in the category as it has delivered just 12% in almost four years from its issue price of Rs 985. The share got listed at its issue price.

On the other hand, Infibeam Avenues has been a wealth destructor despite listing at Rs 458, 6% higher than its issue price of Rs 432. However, the stock has destroyed investor wealth by 88% as it at currently trades at Rs 50.25.

Will Zomato follow?

The much-awaited IPO of home-grown unicorn Zomato is here, and the moot question is whether it will deliver robust returns just like other stocks from this segment. Well, then first things first unlike other internet-based listed companies, Zomato is a loss-making company. The company has narrowed losses to Rs 816.42 crore in FY21 from Rs 2,386 crore in FY20. It had reported a Rs 1,010-crore loss for FY19. Zomato in its DRHP said it expects costs to increase over time. “Our losses will continue, given significant investments expected towards growing our business,” the IPO filing documents said.

Going by the grey market trends it seems that Zomato might see a muted listing as the issue is expensively priced. As the grey market premium has more than halved to Rs 8 per share compared to Rs 18 when the company announced its price bands.

Abhay Doshi, Founder of Unlisted Arena who tracks grey markets explains that the premium has fallen mostly due to Zomato being the first mover in the space so it’s difficult for the market to ascertain valuations as the company is still posting a loss. Such disruptive businesses are a double-edged swords, as the entry of any big, deep-pocketed player may pose a serious threat to the business.

“Zomato seems to be very expensive and the listing could be muted given the valuations,” said Dipan Mehta, Founder Director at Elixir Equities.

However, over time the stock can give very good returns as it is a great long-term story and a good play on the rising of digital businesses in India, Mehta added.