Zomato Valuation Aswath Damodaran: A Detailed Analysis

Aswath Damodaran, a renowned finance professor, has provided a detailed analysis of Zomato's valuation. He estimates Zomato's cost of capital to be around 15.5%, which is lower than the company's cost of debt.

Zomato's revenue growth rate is expected to be around 50-60% per annum, making it an attractive investment opportunity. This growth rate is a key factor in determining the company's valuation.

Damodaran's analysis also highlights the importance of understanding the company's business model in determining its valuation. In the case of Zomato, its business model is based on providing food delivery services to customers.

Zomato's valuation multiples, such as the price-to-earnings ratio (P/E), are also analyzed by Damodaran to determine the company's fair value.

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Aswath Damodaran, a renowned finance professor, valued Zomato at $3.5 billion in 2021, considering it a "high-growth company" with significant potential for expansion.

He used the company's revenue growth rate of 70% to estimate its future cash flows, assuming it would continue to grow at this rate for the next few years.

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Damodaran also considered Zomato's operating margins, which were around 15% at the time, and used this to estimate its operating income.

The professor valued Zomato using the discounted cash flow (DCF) method, which involves discounting future cash flows to their present value.

He used a cost of equity of 12% to discount the cash flows, which is a relatively low rate considering the company's high growth prospects.

Damodaran's valuation of Zomato was significantly lower than the company's market capitalization at the time, which was around $15 billion.

This highlights the challenges of valuing high-growth companies like Zomato, where future cash flows are highly uncertain.

Damodaran's valuation approach provides a useful framework for understanding the complexities of valuing high-growth companies like Zomato.

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Aswath Damodaran, a renowned valuation guru, has shared his thoughts on Zomato's valuation. He estimates the total online food delivery market in India to reach $40 billion in 10 years, with Zomato getting a 40% share.

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This translates to a value of Rs 394 billion, or Rs 39,400 crore, which works out to a value per share of Rs 41. This may seem like a lot to pay for a money-losing company, but Damodaran believes promise and potential have value, especially in a massive market.

According to Damodaran, Zomato's true value is Rs 41 per share, which is a sharp discount of 70% from its share price of Rs 138 in July 2021. He arrived at this figure by analyzing the online food delivery market in India and expecting Zomato to get a 40% market share.

Damodaran's valuation math suggests that Zomato's value per share is Rs 41, but the current stock price is much higher, making it overvalued in his opinion. Despite this, he believes the company has potential and would consider investing in it if the price drops.

Damodaran's comments on Zomato's valuation are not dismissive of investors who bought the stock at higher prices. He acknowledges that there are plausible stories that can justify values higher than Rs 100 per share, but in his opinion, the stock looks overvalued at Rs 70-75 per share.

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Aswath Damodaran is a renowned finance professor at the Stern School of Business, New York University. He's known for his work on valuation and corporate finance.

Damodaran has been analyzing Zomato's financials, and his approach is based on the company's discounted cash flow (DCF) model. He uses a 10-year cash flow forecast to estimate Zomato's future cash flows.

In his DCF model, Damodaran assumes a growth rate of 25% for Zomato's revenue for the next five years. This growth rate is based on the company's historical performance and industry trends.

He also assumes a terminal growth rate of 3% after the first five years, which is a reasonable estimate given the company's size and industry dynamics.

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Zomato's growth trajectory is back on track, and the company doesn't foresee any "post-Covid ramifications" affecting its growth rate anymore.

Zomato's revenue surged sequentially during its Q4 results, driven by new customers and a surge in order volumes.

The total value of all food delivery orders placed on the platform, or gross order value, reached a record high of 77% during the quarter.

Zomato is now present in over 1,000 towns and cities across India, with more than 300 city additions during the quarter under review.

Here are some key statistics that highlight Zomato's growth: