Zomato Backer Temasek Says Indian Public Market Has Matured To Handle New-Age Firms
The success of Zomato Ltd.’s initial public offering proves that the Indian market has matured to handle new-age firms, according to Temasek, one of the investors in the food delivery firm.
Zomato’s Rs 9,375-crore offer was fully subscribed on the first day of sale on July 14 and had received demand for more than five times the shares on offer by the end of the second day. The portion set aside for anchor investors was subscribed more than 35 times ahead of the offer.
That comes as investors pile into IPOs when benchmark indices breach new records, having rebounded from last year’s pandemic lows. Maiden offers of other new-age firms such as Ease My Trip Planners Ltd. and online gaming platform Nazara Technologies Ltd.'s received overwhelming response.
The Singapore-based investment fund has 5% of its $281 billion assets under management in India. Half of its India exposure is direct investments, including in startups.
“What we are now seeing is that they (new-age firms) are at a point where they can be IPOed in the Indian market,” Promeet Ghosh, deputy head-India at Temasek, to BloombergQuint in an interaction. It’s unusual for the local public market to accept these business models and it reflects “not only the maturing of the companies but also maturing of the markets”.
“We started investing in early-stage companies seven to eight years ago. Our investments in some of them like Billdesk, Pine Labs and Policybazaar are long-standing investments,” he said. Many of the companies that Temasek backed are much more mature and potential IPO candidates like Zomato, he said.
Covid-19 has consolidated and formalised the economy, increasing the adoption of tech companies, Ghosh said. “Some of these companies are now a larger part of your life than earlier and that also may be translating into better acceptance by the public markets,” he said. There is a far greater acceptance of technology-led solutions, he said, whether it’s home delivery of food, online transactions or online marketplaces.
While several startups shut down during the pandemic, Ghosh said Temasek’s investee companies managing to stay afloat as they were either adequately funded or pivoted their business model.
How To Value New-Age Firms?
“Valuation today is important but you need to prognosticate it to the future, say five to six years down the line—what is this going to look like,” Ghosh said. “Once you got a sense of that … [and then you see if] the valuation paid today is fair or not”.
Should Investors Look At Cash Flows?
While brick-and-mortar companies invest in plants and machinery, new-age firms spend on technology and acquiring customers, Ghosh said.
“You have to think what is creating a long-term sustainable value in this business (new-age firms), he said. “Eventually, you have to look forward and see, is this a sustainable model. What differentiates it from others in the space?”
There are innumerable examples of technology-focused companies which continued to invest cash every year and still are very large companies today, he said. The markets are comfortable in supplying cash and valuing such firms well because they have built up scale and have strong entry barriers for newer players, he said.
Ghosh, however, expects consolidation among tech platforms with traditional firms. “It’s a global trend that there have been combinations between older brick-and-motor company and technology platforms,” he said. “There is value to be had by combining those two.”
One example of it is Temasek-backed Pharmeasy’s acquisition of diagnostics chain Thyrocare.
Next Big Investment Focus
Temasek is betting on ESG and targets to reduce by half the carbon footprint of its portfolio companies by 2030 and net carbon neutral by 2050.
Temasek has invested in solar startup O2 Power Pvt. and ride-hailing firm Ola that now also makes electric two-wheelers. The fund is also helping its portfolio companies to reduce carbon footprint and invest in emerging technologies, Ghosh said.
Watch the full conversation here: