Zomato has become India’s first venture-backed startup to be part of the BSE Sensex, which includes the country’s 30 most liquid and valuable companies. Over the last two years, Zomato has delivered 70 percent growth, far outpacing the benchmark average of 19 percent. Consequently, it trades at a premium valuation of 10.6x one-year forward revenue compared to the Sensex average of 5.4x.
This development signals that Indian market indices are becoming more representative of the economy, particularly the burgeoning tech sector, similar to patterns observed in the U.S. and China. In another noteworthy event, Swiggy’s IPO recently added $13 billion in market cap, bringing the other half of the food delivery duopoly to public markets. Although it initially listed at a 55 percent discount to Zomato, this gap narrowed to 50 percent within a month.
Swiggy’s stock surged 31 percent post-listing, compared to Zomato’s 20 percent rise, indicating growing market familiarity with Swiggy and effective management strategies. The current trend among venture-backed IPOs is promising. Out of the 11 such IPOs since the beginning of FY24, ten are trading above their issue price.
Zomato in Sensex highlights milestone
The median premium of 53 percent over the issue price reflects buoyant market conditions and a strategic approach by startup management to leave value on the table during their first public outing. Returns over the past five months, ending November 2024, compared to a 0.2 percent decline in the Nifty 50, show promise.
However, this outperformance was not widespread, with gains concentrating among half of the index constituents. Such selective strength highlights the nuances of market dynamics. Data available as of November 29, 2024, corroborates this relative strength and underscores the selective appeal of high-growth startups.
An average Indian listed startup trades at 1.2x its mid-cap peers because it grows at 1.8x higher than them, as per FactSet data. This trend indicates the market’s recognition of the higher growth potential of startups compared to more established entities. The majority of the companies listed in 2024 are trading at premiums over their issue and listing prices.
This performance correlates directly with improvements in profitability, with a notable percentage improvement in EBITDA margins from Q1FY25 to Q2FY25. This period marks a significant milestone for India’s startup ecosystem, demonstrating the increasing integration and acceptance of tech companies in the nation’s capital markets.
