As investors continue to batter newly-listed stocks of new-age companies -with some hitting fresh lows - market veteran Deven Choksey in interaction with CNBC-TV18 stressed the need to know the profitability of such businesses. "One wants to definitely understand the proposition under which the business will start making a profit," he said.
Choksey of KRChoksey was referring to food delivery startup Zomato, whose board approved a loan of up to $150 million (around Rs 1,145 crore) to Blinkit (Grofers).
The remarks from the market expert come on a day Zomato shares hit a fresh 52-week low of Rs 75.6 on BSE, breaching its earlier low of Rs 75.8 (February 15). At this level, the Zomato stock changed hands below its issue price of Rs 76.
Many experts have time and again questioned the valuations demanded by new age or platform companies, which have gradually lost investors' interest.
Choksey of KRChoksey said he is "always very keen to understand from the company as to whatever business they are doing and where exactly they see this business generating profits for them".
New-age companies such as Zomato are yet to make profits.
"In the case of Grofers also, we need to know how exactly this distribution company could probably bring money to Zomato. Doing a share swap bill and doing a merger is fine, you're creating a new vertical in the company. That's absolutely acceptable," he said.
"If you get that clarity, then the confidence is higher, otherwise, as a customer, one can enjoy their services, but not as an investor investing," said Choksey.
Newly-listed new-age companies including Zomato began 2022 with a mixed bag of earnings. For the quarter ended December 2021, Zomato reported a net loss of Rs 63.2 crore despite an 8.6 percent year-on-year rise in revenue to Rs
1,112 crore.
Zomato has said the loan to Grofers will be at an interest rate of 12 percent per annum or more with a tenor of not more than one year. The loan, it said, will support the capital requirements of the company in the near term.
Last year, Zomato had acquired around nine percent in the digital grocery shopping company for $100 million (Rs 745 crore).
Profitability: Zomato vs Jubilant FoodWorks
Choksey cited the example of Jubilant FoodWorks - which operates Domino's Pizza outlets in India. He said one of every two new stores turns into profit within one year.
"Jubilant FoodWorks has a relatively better ability to generate profits out of the stores that they create... That is where you get a relatively higher amount of confidence," he said, comparing the QSR operator with Zomato.
He likes Jubilant FoodWorks among QSR stocks. Jubilant's menu keeps changing, which is important in the space for a business to survive, and is doing "a smarter job," he said.
Valuation-wise, however, the stock remains expensive, according to Choksey. The current valuation is getting corrected a bit, he said.
Jubilant FoodWorks shares rose as much as 2.2 percent to Rs 2,579.4.
"One will have to know the strategy from the new man at the top. Probably that could give more clarity... We would definitely want to see clarity emerge on the new strategy that the company would adapt hereafter," he said.
Last week, Pratik Pota stepped down as CEO of Jubilant FoodWorks. Jubilant FoodWorks has started the process of identifying a successor.
(Edited by : Akanksha Upadhyay)
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