Why investors kept on funding Zomato even after no profit for years?

Team Udayavani, Nov 29, 2021, 10:12 AM IST

From 2018 to 2021 – Total loss of Rs 4,600 crore

Q) Were the employees not paid?
The answer is No, They were paid handsomely

Q) Were the customers forced to pay a high amount?
The answer is No; they were instead given meals at a high discount

Q) Might the founders and top brass be taking fewer perks?
The answer is No; the founder’s basic salary was Rs. 3.50 crore

Co-Founder – Rs. 3.70 crore
CTO 1.50 crore
CFO 3.26 crore

Q) Any Income Tax?
Since the company was running at a loss, there is no Income Tax payable.

So who was bearing the brunt of heavy loss?
The answer is the Investor of the company.

It is obvious that the Loss of 4670 crores is funded by external Investors.

So isn’t it the existing Investor of the company at a loss?
 
How do these external existing investors gain if the company is running at loss? Now here is the trick.

There is trading of loss.

What If I tell you that loss can be sold at a profit?

Yes, that is possible.

Investors (Top 5 Investors were holding around 50% stake) who pumped funds into this startup have already had their funds eaten up by the losses. Yet in the books they held numbers of shares and % of the stake.

VALUATION – The talking point

Now, the company went for an independent valuation.

The valuer valued the loss-making company for Rs.60,000 crore. With this valuation, the company went for IPO.

Strong advertisement, endorsement by some experts, news channels, social media, etc. created such hype in the market of forthcoming IPOs that it gave the impression to every stock-market trader of a cake that no one was going to give a miss.

With such a marketing, valuation, and expert endorsement, IPO got oversubscribed by a whopping 38% with listing priced at Rs 116 which was valued at 72-76 (which itself was questionable)

The interesting point was that company went for IPO for Rs. 9400 crores, out of which only 400 crores was only pumped into the company, the rest 9000 crores was part of the offer for sale by existing Investors.

That means out of 9400 crores subscribe and funded by the public in the form of Rs. 116 share, first 9000 crores will go to the early Investors.

These are the same people who funded the loss-making company and now they sold their stake at higher profits.

Now the value of the share of early Investors is 1010 times higher than when they purchased the share at first. So, for 4,700 crores loss-making company, everyone was paid more than their worth

So who is now handling the loss?

Yes, we public hold shares of the company.

The loss has been passed on from the top 10 Investors to the public at a profit ranging from 60 to 1010 times.

This is the stock market for you and also a new way of making money.

Authored by Amrit Chaubey, Founder – The Podcast Movement INDIA