Timing Of AntFin's Partial Zomato Exit Ahead Of Paytm Deal Raises Questions

The deal involved acquiring the entertainment, sports, and events ticketing business—Insider and TicketNew—from Paytm for Rs 2,048 crore.

While the street could argue whether it should value the deal at one-time gross order value, or at nearly seven times revenue of the business it has bought, and nearly 70-times the adjusted Ebitda it earns, the big question is the recent exit by of the its pre-IPO investor—Jack Ma's Antfin—just a day prior to the deal announcement.

The unit of Chinese fintech giant Ant Group Co., called Antfin Singapore Holding Pte. Ltd. sold stake worth Rs 4,771.66 crore in Zomato Ltd. through open market transactions on Tuesday, according to the data available on BSE.

Antfin Singapore divested 18.54 crore shares in two bulk deals of 9.27 crore shares each at Rs 257.46 and Rs 257.17 per share, BSE data showed. The firm upsized the block deal from $406 million to over $550 million on Tuesday morning ahead of the stock market transaction.

Antfin held over 8% in Zomato at the time the restaurant aggregator went public.

Howeover, there is no correlation between the new acquisition with the Ant Group's exit, according to Pankaj Murarka, chief investment officer of Renaissance Investment Managers. "Think they are independent and I'm not sure if the group had a board seat to be aware of the impending transaction."

For the Chinese fintech, it was more of a financial investment and they have already made money from it, he said "Financial investors will make their exit having made good financial gains and I don't think it's a reflection on Zomato future growth prospects."

Zomato posted a profit for the full year ending March 2024 on the back of jump in other income. Its' core operations are still loss making and other income rose led by profits from bond and debenture trading income.

Zomato shares have jumped 242% since its listing in July 2021. It hit a low of Rs 40.60 soon after listing before bouncing back.

The recently announced Paytm deal is clearly an attempt to buy gross order value as justified by the management in the shareholder note. While there is no doubt that events and ticketing businesses has potential, the scalability and profitability is far off as it requires continuous incentives program to lure customers to the platform. Leading players like Reliance Industries' backed BookMyShow is finding it difficult to bring scale to this business. BookMyShow revenues for the fiscal ended March 2024e stood at around Rs 800 crore.

Zomato has over Rs 12,400 crore in cash and cash equivalent at the end of March 2024 in its books. Its core operations are still not cash generating and cash from operations is largely based on other income.