NomuraReuters file

The Indian arm of Japanese financial holding company Nomura said on Friday that it is bullish on online food firm Zomato's growth performance and has valued the company at $1.4 billion.

"Zomato, in our view, is the only global scalable India player with potential to target spending across the entire restaurant value chain — advertising, food ordering and table booking," wrote Nomura analysts Ashwin Mehta and Rishit Parikh in the report.

Nomura's view comes at a time when the food startup is in advanced level of discussions with Ant Financial Services Group, an affiliate company of China's Alibaba, to raise funds.

If the deal fructifies, Zomato will raise up to $200 million from Ant Financial, the online payment service provider.

However, Mint had on September 5 reported that Zomato was likely to be valued at $800-$900 million as part of taking the deal ahead.

Nomura's mark-up valuation came after investors like HSBC Securities and Capital Markets (India) Pvt Ltd slashed its valuation by about a half to $500 million last year, raising concerns over its advertisements and delivery business service.

Nomura believes Zomato's business is globally scaleable and expects it to open up its food delivery services beyond the three countries where it currently has a presence.

But, last year, the online food startup closed operations in nine countries out of the 23 where it had operated from in order to maintain its cash burn rate.

However InfoEdge, Zomato's largest investor which owns about 47 percent of the company's stake, said the company had plenty of cash and its sales had doubled over the last nine months. Cash burn rate was also down about 70 percent from its peak.

Zomato started its delivery business in 2015, which soon incurred losses. Fiscal 2016 was a tough time for the company. Besides, scaling back operations in several countries and facing a valuation markdown last year, the company also trimmed its workforce.


In contrast, this year, the company seems to be on the recovery path as its March 2017 revenues alone have touched the $5-million mark. Sales rose 80 percent to $49 million in 2016-17 on the back of growth in the advertising and food delivery business which were earlier lossmaking propositions.

According to Nomura's projections, Zomato's sales are expected to surge and touch the $300-million mark over the next five years as the company's advertising and food delivery business gain traction.

If Zomato is able raise funds from Ant Financial backed by its recent valuation mark-up, that should help the company limp back to growth and expand its business activities at a more rapid pace.