Koustubh’s Portfolio

Let me start with Zomato. This is relatively a small allocation (~2%) in my portfolio. There is a 2 fold reason why I bought Zomato:

1. Borrowed conviction: Mr. Sanjiv Bhikchandani (InfoEdge Partners) happens to be one of the earliest investors in Zomato (InfoEdge invested in Zomato in 2010). Sanjiv is a genius business mind. He has built Naukri.com (a colossal cash cow) and is one of the most successful investors in the country. Even today, he is extremely bullish on the discretionary spending trend in the country and Zomato’s trajectory. In fact, till date he has not sold a single share of his holding in Zomato. He constantly guides Deepinder (CEO of Zomato) in his endeavours. On the valuation front, the dean of valuations Prof. Aswath Damodaran of Stern Business School, NYU had valued Zomato. He estimated the stock’s fair value to be about 40INR back in 2022. These are two people I have followed all my life and admire a lot. Frankly, a part of my investment rationale happens to be borrowed conviction from their stance on the company.

2. The Duopoly Fallout: Zomato and Swiggy are the only two players in this industry and lately both have been focussed on getting to profitability as the funding winter stares them in their faces. However, if one looks at operational metrics closely, barring Blinkit (the quick grocery delivery arm), Zomato soars way ahead of Swiggy even though Swiggy was the first to turn its core business EBITDA positive. Zomato guides for PAT profitability by FY26 and a positive EBITDA margin by FY25. Once company turns profitable, given its dominance in consumer technology, operating leverage will kick in and unlock the next lever of growth. Currently, since the past few quarters, Zomato has gained market share and is now the bigger than Swiggy. There is a bright chance of M&A action possible in this space in the years to come where either one of the big players will buy out the competitor.

The above two themes in conjunction with the founder’s focus on growing the franchise profitably and delivering disproportionate returns to the shareholders made me a buyer of the stock. However, it looks like a 10 year story to me and the story has just started!