Why Aswath Damodaran is ready to revisit Zomato, add other young companies to his list

Aswath Damodaran, Professor, Stern School of Business, NYU, says there are things that Zomato has done that are really good and things where I have questions and that is the basis for valuation. Does it mean I will get it right? The reality of valuation is you are right for a very brief moment of time. Then, you are going to be wrong again, if you measure right and wrong based on the price being different from value. I think Zomato might become one of the companies I will revisit.


Do you think you have been wrong about Zomato and are you ready to revisit it?
Aswath Damodaran: Zomato has been impressive on some fronts. Its Blinkit acquisition allowed it to start expanding its delivery business into groceries, electronics. Potentially, if you look at Zomato, the story you would tell about the company is not so much of a delivery company anymore, it is almost like a last-mile company, which in India is torturous because of traffic and congestion and infrastructure.


So, if you are a mile away from your laundry and you want to pick up your laundry, that is a one-hour trip. Zomato, in fact, is living off the fact that Indian urban infrastructure is broken and because it is broken, you need a company like Zomato doing stuff that you used to do 20 years ago on your own. So, I am impressed by the expansion. What I think the market might be missing is you are entering a very different kind of business in terms of profitability.

I value companies because I am fascinated by them. I do not care if I get them wrong. I am fascinated by them because they are changing. So, there are things that Zomato has done that I look at and say that are really good and things where I have questions and that is the basis for valuation.

Does it mean I will get it right? I mean, the reality of valuation is you are right for a very brief moment of time. Then, you are going to be wrong again, if you measure right and wrong based on the price being different from value. So, I think Zomato might become one of the companies I will revisit.

If there are other young companies that catch my attention, I will add them to my list. But you will know because when I do valuation, I almost always write about it because to me, I mean, it drives my decisions but it also means that the reason I write about it is I now cannot back away and say, I never said that because it is right there on paper.

There was one company with a lot of energy, which was TCS, dragging along a lot of aging companies and that is not healthy for a family group. They have recognised that. One of the things you need to do as a family group is first make an inventory of every company in the group and be realistic and honest. It is tough to do it because one has emotional attachments to these companies. Let us face it, Tata Steel is not just another company in the Tata Group. Just like Air India, Vistara is not another company in the Tata Group. There is an emotional attachment which goes back to maybe even three generations in some family groups.

So, sometimes setting that emotion aside and being realistic is the first step for a family group to inventory its holdings.