Will investors buy Zomato's $3.6 Bn valuation by HSBC in next round?

In a shot in the arm for Zomato, HSBC Global Research has valued the company at $3.6 billion, or about Rs 25,000 crore. This is around 70 per cent higher than the valuation ascribed to the restaurant discovery and food-delivery firm when it raised capital recently.

The jump in valuation also takes Zomato ahead in the race with rival Swiggy which was valued at $3.3 billion post $1 billion funding round in December.

The brokerage firm’s valuation projection for Zomato will be tested when the Ant financial-backed company raises fresh capital. 

HSBC has upped Zomato’s valuation while taking into consideration the operations of its publicly traded shareholder InfoEdge, which holds 26 per cent in Zomato. Taking note of its fundamental change in its business operations, HSBC observed that food delivery is now contributing about 70 per cent to Zomato’s total revenue.

Given the scope of its recent expansion and the need for further funding, HSBC has valued Zomato on a discounted cash flow basis, at $3.6 billion (at a marginal 9 per cent premium to its competitor Swiggy as of the latest round of funding) versus $0.9 billion earlier due to the change in business focus.

In recent months, besides food delivery, Zomato has also trimming global assets to fund cash guzzling food delivery business on local turf. Recently, it offloaded UAE food ordering unit to Delivery Hero for $172 million.

Looking into the future, HSBC expects employee costs and delivery fee costs per order to gradually decline with a larger acceptance of these platforms and an increase in the number of orders per person. It estimates 300 million food delivery orders a month by 2024, with Zomato enjoying 37-40 per cent market share.

After e-commerce, online food ordering is turning out to be an expensive battle amongst Zomato, Swiggy, and UberEats. Collectively, they are losing over $80-10 million a month. To continue its fight, Zomato requires more capital and it would be interesting to see whether the firm raises next round anywhere close to $3.6 billion.

The development was reported by ET.