HSBC Arm Slashes Zomato’s $1 Billion Valuation By Half

New Delhi: After successive markdowns of highly priced tech startups by US mutual funds, it’s now HSBC’s brokerage arm which has slashed the paper valuation of restaurant-discovery platform Zomato, while taking stock of the startup’s publicly traded shareholder InfoEdge. This is possibly the first instance of such a markdown being done by an India-based equity research team for a privately held internet company.

A note circulated by the HSBC arm last month covering InfoEdge raised grave doubts around Zomato’s steep valuation, its international expansion and its overall business model. HSBC Securities and Capital Markets in a detailed report, titled ‘India Internet - Lot of Growth but Slim Pickings’, posited, “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 percent lower to the $ 1 billion valuation.” InfoEdge holds nearly 50 percent in the Gurgaon-based Zomato and also runs sites like Naukri.com, 99acres and Jeevansathi, among others.

In an emailed response to TOI's query, a Zomato spokesperson said, “We’ve not raised any financing round since the last one to have a valuation reset. Our investors are as bullish about Zomato as they were before. We are growing fast and are on course to become profitable as a company very soon. Beyond this, we do not want to comment on valuation markdown speculation of third parties.”

Zomato has had a tough last one year as it prunes its business, leading to hundreds of people getting laid off, closure of operations in a few cities, and a stream of top-level talent leaving the company. Having stayed away from the food ordering segment for a substantial period of time, Zomato entered the space in April 2015. Zomato Order has been fighting it out with the likes of Bangalore-based Swiggy to capture market share in a category which has very high user acquisition costs.