Should Zomato and Swiggy valuations move in tandem? Chakri Lokapriya answers

Chakri Lokapriya, CIO & MD, TCG AMC, in terms of Swiggy and Zomato, Swiggy has seen the private equity investors using Zomato as a benchmark and as its valuation is coming down, Swiggy has been rated down. So, this chicken and egg story is kind of impacting Zomato more and therefore all their growth plans which again need capital will go on the back burner and that means it is going to hold back growth of the company. For a growth company, holding back growth is clearly the biggest bad news in valuation terms.

Do you have a view on Raymond because it is changing its entire colour?
Raymond is not a stock that we have been invested in any time in the recent past. So, I do not have much of a view. But companies like Raymond which are transforming their business in terms of lowering debt and also going through a marked shift in terms of its business model of being male only in its apparel business to adjacent businesses that it wants to get into. So, the trend is in the right direction, but I do not have a view on the stock.

What has been your strategy in this uptrend?
The strategy in this uptrend is: One, thankfully we got banking right. Second, consumers because interest rates have largely peaked as far as India is concerned. Maybe they will be in a pause for some time so that is good news for margins at least will start holding up. Input costs are coming down.


When I say consumer, it is all these small ticket items. Hotels one, A) have done well, will continue to do well. B) All the QSR, the Jubilant, Devyani type of companies’ and C) you can club even auto ancillaries, companies that supply to the auto companies and which is a derived demand. I think these sectors will do well.

Zomato is down 6% in trade, your view?
This is again a consumer-facing sector, but again, without any kind of pricing pressure. We have seen similar examples even in Paytm. You can call it a consumer business, their margins outlook is weaker than what they thought it would be. The same trend will kind of continue. The excesses of two years ago kind of valuations unfortunately we will not get any time in the near future. So, I think it has a long way to go.

Do you think it would be naive to compare Zomato and Swiggy because Swiggy valuations have been hunkered down last evening and Zomato valuations were hunkered down or they have come down because of price discovery three months ago. So, today markets are saying okay Swiggy valuations are down, so Zomato will also go down. Do you think it is too naive to put two and two together here?
No, I do not think so, because you raised a couple of important points. One is if the government does step into this business, then clearly the margin profiles of the whole industry or rather the expectations that the margins will improve sometime in the future will not hold up.

Second in terms of the Swiggy and Zomato, Swiggy has actually been taking the private equity investors using Zomato as a benchmark and as its valuation is coming down, Swiggy has been rated down. So, this chicken and egg story is kind of impacting Zomato more and therefore all their growth plans which again need capital will go on the back burner and that means it is going to hold back growth of the company. For a growth company, holding back growth is clearly the biggest bad news in valuation terms.