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HSBC brokerage slashes Zomato’s $1bn value by half

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HSBC’s brokerage arm – HSBC Securities and Capital Markets (India) – has cut the valuation of Zomato. The restaurant search service’s valuation was slashed from $1 billion to $500 million.
The move comes close on the heels of a valuation downgrade in e-commerce player Flipkart some time back.
This is possibly the first instance of such a markdown being done by an India-based equity research team for a privately held internet company.
A note circulated by HSBC last month covering InfoEdge raised grave doubts around Zomato’s steep valuation, and its money-losing international expansion.
In the note, HSBC cites concerns surrounding Zomato’s advertisement-heavy business model, and growing competition in the food ordering space.
The note cautions that unless Zomato steps up its last-mile delivery model – Zomato Order – it will find it tough to retain market share. Its competitor, Bangalore-based Swiggy has been receiving funds at regular interval, the note states.
“Competition will always find it easy to take share via other routes, particularly online last-mile delivery model. We understand that last-mile delivery is not easy but unless Zomato leads in this space it will find it tough to retain market share. Particularly, we have Swiggy in India which is very active in the space and has been getting funding at regular intervals,” the note explained.
Restaurants that pay for advertising only account for approximately 6-8 per cent of Zomato’s overall database, the HSBC analysts said.

Meanwhile, Zomato and its largest shareholder InfoEdge (India) Ltd disagreed, saying that the restaurant listings company will become profitable very soon.
Zomato had raised US$60 million in fresh capital in September 2015, largely from Singapore’s Temasek Holdings Pte and existing investor Vy Capital, valuing the company at about US$1 billion. The company has raised about $225 million since inception in 2008.
However, food technology start-ups in India are suffering due to a slowdown in funding, with some either closing down or getting acquired after failing to raise capital.
In January, Zomato too shut operations in four cities—Lucknow, Kochi, Indore and Coimbatore. Apart from this, the company saw many top level exits and had to lay off hundreds of employees in the last year.
Other casualties in the food tech start-up space, according to a report in The Economic Times, include Mumbai-based TinyOwl, which is backed by marquee VCs Sequoia Capital, Matrix Partners and Nexus Venture Partners, and Foodpanda, a part of Rocket Internet’s portfolio, along with smaller players such as Dazo and Spoonjoy.
Since the end of last year, mutual funds, which invest in public and privately held companies, have been reworking valuations of their investee companies, largely in the tech space.
InfoEdge has nearly 50 per cent stake in Zomato. It also runs other websites, notably,, and among others.
In the same report, HSBC lowered the valuation of another InfoEdge investee company, PolicyBazaar, by 10% from the current US$200 million.
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