Not getting over Fund crunch cyclone in Indian startup ecosystem, it seems one more cyclone is going to hit Indian startups called as “valuation cut-off”. After India’s leading e-commerce company Flipkart valuation cut-off, the cyclone is hitting one more Indian startup “Zomato”.
The brokerage arm of HSBC’s bank, HSBC Securities and Capital Markets has slashed the valuation of Zomato by half from $1 billion to $500 million. However, Info Edge which currently owns a 50.1% stake in the company disagreed with HSBC’s estimate.
In the note, which raised concerns around Zomato’s ad-heavy business model, international operations and growing competition in the online food ordering segment, according to a report by Mint.
What matters is that your business has strong fundamentals, positive unit economics, prospects for growth, and a clear path to profits.
— Deepinder Goyal (@deepigoyal) May 9, 2016
“Zomato is present in 23 markets so early on and none is profitable, which implies that to address both the investments in last-mile delivery and losses in international operations, fund-raising will be a continuous phenomenon, suggesting current valuations don’t make much sense. We do a discounted cash flow (DCF) analysis and value the business at 50% lower to the $1-billion valuation” HSBC analyst Rajiv Sharma reportedly said in the note.
Zomato was valued at $1 billion when it picked up $50 million funding from Info Edge, Sequoia Capital and Vy Capital in April last year. Overall, it has raised about $225 million since its launch in 2008.
Info Edge founder and Vice Chairman Sanjeev Bikhchandani told the publication that Zomato’s “revenue has more than doubled in the last nine months. Costs have been rationalized and burn is down by more than 70% from the peak. The company has plenty of cash and its unit economics are really good”
“We value our investments at cost and Info Edge has not marked down Zomato at all” Bikhchandani added.