Zomato IPO: Valuation of loss making company

It's very hard to do a valuation of the loss-making company. As the company is a loss-making we don't have any earning. When we don't see any earnings it's difficult to understand the PE ratio. If we don't have the PE ratio how will we know it is undervalued or overvalued.

In this scenario, we use enterprise value (EV) and sales revenue ratios. 

Zomato EV/sales = 25 (according to economic times)

The share price of Zomato is 76 rupees. Now the company's total sales revenue is 3 rupees,(75/25) as mentioned in the EV/sales formula. 

If the company turns profitable and has a 10% margin, it's earning per share is 0.3 rupees. 

So PE of profitable Zomato will be 75/0.3=250

It's highly overvalued.

If Zomato continues to grow with 100% every year, which it has grown from last two years, Then it will take another 5 years to earn 10 rupees per share.

So after becoming profitable Zomato has to double every year for 5 years to give me a PE of 7.6. If it happens then It is good to buy at the current price.

It will become the next Asian paint of India, as it is sitting on a pool of data collected until now. Zomato knows at which area, at what time, what people like. Its data knows the taste of every corner of India. These data will help them to create beautiful business verticals. I don't see it as a delivery company, I see it as a tech company.