From Food to Finance: Zomato’s Epic Leap into the BSE Sensex

A decade ago, dining out meant driving miles to your favourite restaurant. Today, with Zomato, your favourite meal is just a few clicks away. This revolutionary brand hasn’t just changed how we eat—it’s transformed how restaurants connect with customers and how investors view the future of Indian business.

From reshaping the food industry to making history with its IPO in 2021, Zomato has become a trailblazer in the tech-driven economy. Now, as the first new-age tech company to join the prestigious BSE Sensex, it marks the dawn of a new era for Indian stocks. Let’s explore what this groundbreaking milestone means for investors and the market.

Criteria for Inclusion in Sensex

Before we discuss parameters that led to Zomato’s inclusion in Sensex; first discuss the BSE Sensex selection criteria.

• To qualify, a stock must be listed on the BSE for at least three months. For companies with full market capitalisation, this is reduced to one month. Stocks created through corporate actions are completely exempt from listing history requirements.

• The concerned stock must also have been traded on the exchange on every trading day during the past three months.

• Stocks must rank among the top 100 companies based on a composite score of 75% three-month market capitalisation weightage and 25% liquidity, determined by turnover and average impact cost.

• Each stock in the Sensex must contribute at least 0.5% to the index, calculated using its three-month average free-float market capitalisation.

• Additionally, BSE-listed companies must possess a strong balance sheet and maintain healthy revenue margins.

Zomato’s Performance Leading Up to the Inclusion

Zomato’s stellar performance on the price chart and its balance sheet has paved the way for this game-changing milestone. With consistent growth and impressive financials, Zomato is all set to replace JSW Steel in the Sensex on 23 December 2024. Here’s how it got there:

• Listing Day Performance

Zomato debuted on the D-Street with an IPO worth ₹9,375 crores. It set the price band for its stock at ₹72 to ₹76 per share, with a minimum lot size of 195 shares.

Surprisingly, the company’s IPO was oversubscribed by 32.96 times, and even more remarkable was that 77% of the retail bids were placed at the cut-off price. With such hype, Zomato closed at ₹125.85 on its listing day, which is 64.87% higher than its final offer price.

• Performance Till Date

As of 28 November 2024, Zomato was trading at ₹286.13 per share, reflecting a 127.09% return since its inception. On 25 November 2024, when news about this company’s listing surfaced, it garnered significant interest from traders and investors, resulting in a single-day spike of 4%.

However, a closer look at the price chart since inception reveals a decline in the company’s share price from November 2021 to February 2023. During this period, Zomato’s stock hit an all-time low of ₹40.60 per share. The reasons for this correction included a global sell-off trend, rate hikes, and overvaluation.

The stock price began recovering in mid-February 2023 and has been climbing steadily since, with only minor dips along the way.

• Improved Financials

Zomato’s financial standing played a key role in its inclusion in Sensex. You can observe a significant improvement in Zomato’s financials following its IPO launch. The revenue for FY 2021 to FY 2024 stands at ₹2,118.40 crores, ₹5,010.30 crores, ₹7,761 crores, and ₹12,961 crores, respectively. Regarding net income, the company reported a profit for the first time since its IPO debut, with FY 2024 figures standing at ₹351 crores.

Additionally, Zomato’s average debt-to-equity ratio of 3.6% is better than the industry average of 7.07%, complemented by a superior current ratio compared to the combined peers’ average.

The positive cash flow of ₹431 crores further highlights the company’s effective operational management.

What Zomato’s Inclusion Signifies for New-Age Stocks

• Validation of Growth Potential

Vintage investors often hesitate to back companies that are not profitable yet. Zomato, who saw the net income positive for the first time in FY 2024, its inclusion dispels this hesitation. It proved that a company that leverages technology and has strong logistics has growth potential and can outweigh short-term profitability concerns. This paves the way for other tech-driven startups to aim for Sensex inclusion.

• Inspiration for Startups

Zomato’s rise is a blueprint for other Indian startups to scale operations, go public, and aspire for inclusion in benchmark indices.

What Zomato’s Inclusion Means for Investors

• Portfolio Diversification

Zomato’s inclusion broadens the sectoral representation of the Sensex. Now, investors have exposure to the digital economy. This translates to greater portfolio diversification, as new-age stocks like Zomato are less correlated with traditional sectors such as banking or energy.

• Attraction of Passive Funds

With its inclusion, Zomato can attract investments from passive funds and ETFs tracking the Sensex. The capital influx can not only increase the trading volumes but will ensure price stability as well.

• Increased Retail Participation

Zomato’s strong brand recognition among urban millennials could drive more retail investors to enter the stock market. Including relatable brands like Zomato makes equity investing more appealing to young, first-time investors.

• Transparency

Being part of Sensex, Zomato must adhere to strict regulatory requirements and high corporate governance standards, essential for investors who hesitate to invest due to a lack of data availability.

Conclusion

Zomato’s inclusion in the BSE Sensex marks a transformative moment in the Indian stock market, not just for the company but for the entire startup ecosystem. This milestone demonstrates the immense potential of tech-driven businesses and signals the rise of new-age stocks in India’s financial landscape.

For investors, Zomato’s success offers new opportunities for diversification while inspiring confidence in the digital economy. As the first tech company to join the Sensex, Zomato sets a powerful example, opening doors for other startups to follow suit. With strong financials, increased retail participation, and enhanced transparency, Zomato is not just a brand to watch—it’s shaping the future of investing in India.

Source: Business Standard, CNBC TV-18

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

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