Deepinder Goyal, CEO of food-ordering app Zomato, wrote a long blog post on Monday in response to HSBC's brokerage arm cutting its valuation by half to $500 million. Info Edge, the largest shareholder in Zomato, also disagreed with the steep markdown.
"Our traffic in India, our home market, also grew 8% in April 2016 over March 2016. We have over 8.5 million monthly uniques in India alone – very few Indian companies can claim that much traffic share in a single category. Also, we are currently present in 23 countries, and we are the market leaders in 18 of them," he wrote.
Earlier, HSBC's brokerage arm downgraded Zomato's valuation, saying the Indian restaurant search and food delivery start-up was not profitable in any of the 23 markets it operates globally.
"We do a discounted cash flow (DCF) analysis and value the business at 50% lower to the USD1-billion valuation," HSBC Securities and Capital Markets (India) said in a note titled "India Internet - Lot of Growth but Slim Pickings", Mint reports.
"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," the note added to explain the markdown.
Zomato was valued at about $1 billion when it raised $60 million in fresh capital last September from Singapore's Temasek Holdings Pte and existing investor Vy Capital, Mint added.
Zomato's largest shareholder Info Edge said it does not agree with the HSBC note.
"We respectfully disagree with several of the points raised by the HSBC report," Sanjeev Bikhchandani, founder and executive vice-chairman of Info Edge told the business daily.
Info Edge was downgraded by HSBC in an earlier note on April 19.
Info Edge India is an online classifieds company with interests in services that include online recruitment, matrimonial, real estate & education classifieds. It has three wholly-owned subsidiary companies, Naukri Internet Services Private Ltd, Jeevansathi Internet Services Private Ltd and Info Edge (India) Mauritius Ltd.
In its April note, HSBC Securities and Capital Markets (India) had said that except for its job listings portal, all other were yet to start earning profits.
"The company operates the leading job listings portal in India, but its other businesses have yet to break even and, unlike consensus, we don't see the situation improving any time soon," it said.
It then analysed business-wise operations of Info Edge to say that Zomato does not have a sustainable business model.
"First, we foresee competition from start-ups forcing Info Edge to continually invest in upgrading its job portal, which would cap margins. Second, its real estate portal is operating in a weak property market and is struggling to take market share from print. Lastly, we don't think its restaurant search portal has a sustainable business model."
The Info Edge stock ended at Rs. 718, down 0.83 percent from its previous close.