This post on Zomato IPO attempts to bring out consolidated brokerage views , subscription information, Grey Market Premium (GMP) and anchor investor information where applicable. The information collated from various sources and reports in public domain can help investors to decide whether they should subscribe to Zomato IPO or not.

Related Posts : Zomato IPO Review

Zomato IPO: Grey Market Premium etc.

  • 15-07-21 GMP Rs. 15
  • 13-07-21 GMP Rs. 9

Subscription: Zomato IPO ( x times)

Day / X timesQIBNIIRetailEmpTotal 
Day 354.7134.87.870.6240.38
Day 27.460.484.990.365.07
Total Retail Applications ~ 3229677
Appl wise Retail 5.13 x

Consolidated Brokerage Views on Zomato IPO

Angel Broking :”The IPO is being valued at price/sales of 28.6-29.9x FY2021 revenues of `1,993 crore. Post a 23.5% degrowth in revenues in FY2021 due to the Covid-19 pandemic, growth is expected to pick up sharply from FY2022. Moreover, Zomato has been able to reduce its losses in FY2021 despite a degrowth in topline. We expect losses to reduce further over next couple of years due to rebound in growth and improving unit economic. Given strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities, we believe that Zomato will command a premium to global peers and hence recommend to ‘SUBSCRIBE’ to the IPO.”

Capital Market : ” Score 47/100 ; Zomato is being sold at valuation, which do not seem to have any objective basis, but is based on the investors’ fierce demand due to excessive liquidity and prevailing perception of potential scope of fast and sustained growth in the food delivery and adjacent spaces and Zomato’ good execution track record and proven capability to capitalise on the growth opportunities. Post listing, its price on stock market will be entirely a function of how much and how long the company can enjoy the scarcity premium. Here it must be noted that the company will have large equity of R 785 crore (face value of Re 1) at the higher band and the entire equity will be floating stock, after the mandatory IPO related lock-in of one year gets over, as there is no fixed promoter. “

Choice Broking: “Currently, the company is loss making. Also, there is no listed domestic peer having same line of businessas the company. We have considered global peers for valuation benchmarking. At higher price band of Rs. 76, Zomato is demanding a TTMP/S multiple of 29.9x, which is at premium to the global peer average. Thus the issue seems to be overpriced. The companyhas certain positivities like asset light scalable business model, expanded target market post the pandemic, first moveradvantage in food delivery business etc. But its operations in almost duopoly market may attract regulatory actions, whichwould be negative for the company. Also its operations are generating heavy losses, albeit some improvements in FY21, which we believe is not sustainable once socialization normalizes post-pandemic. Thus considering the above observations,we feel that this IPO is not for retail investor, but investors with higher risk appetite with long term investment horizon canapply. Thus we assign a “Subscribe with Caution” rating for the issue”

ICICI Securities: “Zomato’s RHP hints at a continued sharp recovery across key operational metrics in Mar-21 –(1) restaurant count, (2) MAU, (3) MTU, (4) # orders and (5) GOV. The robust increase in signed up restaurants on delivery / discovery platforms (~16k / 40k) is the most interesting update–given it comes amidst negative news flow about ‘perceived’ dissatisfaction of ‘some’ restaurants with Zomato. End –Mar21, restaurant count on delivery platform was ~5k more than even the pre-covid peak. Despite office resumption to an extent in Mar-21, AOVs remained stable at ~Rs395. GOV retention in older cohorts (FY17 & FY18) was reasonably strong despite covid impact in FY21. Expectedly, retention in newer cohorts (FY19 & FY20) saw a bigger drop. In our view, these cohorts are largely outside the urban core where food services faced more serious logistical constraints (v/s Top-20) due to lockdowns. Unit economics, contribution dropped led by –higher delivery cost, discounts and advertising expenses. We noticed a broadly similar trend across internet (including Infoedge) in Mar-21 where encouraging signs of traffic recovery in turn led to companies spending more on advertising and sales promotion. For reasons elaborated in our thematic note (link), we continue to maintain a constructive view on food-tech sector.”

KR Choksey: We believe Zomato is very richly valued at —USD 9 bn given its status of a company which is yet to make any profit. However, as it is the first start-up in the Indian Food Aggregator space to be listed on the bourses, the enthusiasm among the investors about the IPO is tremendous. Also, the company has a unique status of a UNICORN in the Indian Food Delivery space. From the valuation perspective, we are not very comfortable with the sky-high valuation that the IPO is valued at. As a result, we recommend our investors to “SUBSCRIBE” to the issue ONLY FOR LISTING GAINS.”

Nirmal Bang: “With this FY21 Ebitda margin loss reduced and stood at -23.4% in FY21 vs -88.5% in FY20. Improved EBitda also improved cash flow from operations where Cash burn has also been reduced to Rs -1017.9 cr in FY 21 Vs Rs -2143.6 cr in FY 20. However, with pandemic normalizing some of the cost is likely to come back which may impact cash flow going ahead. Although the growth opportunity for Zomato is high, however, being into a highly competitive market, the company has to continuously invest to gain market share. Revenue if not scaled in comparison to investment may impact the profitability and lead to burning cash even going ahead and the Company may not get capital to burn before it turn cash positive. At the given upper price band of issue of Rs 76, Zomato is offered at EV/ Sales of 28.3x FY21. We have Neutral view to the issue.”

Religare : “Zomato is one of the largest foodservice players in India which operates in India’s largest hyperlocal delivery network. For the last 4 years, the company has been consistently gaining market share in terms of Gross Order Value as of March 31, 2021. Further, it has made significant investments in marketing and promotions to accelerate customer adoption of food delivery in India and promote its brand. It has a strong brand name and recall value across large and small Indian cities as its offerings include both food delivery and dining-out options. Going forward, they plan to invest in new products, technology, further deepen their relationships with restaurant partners and lastly continue to invest in their delivery infrastructure and expand their delivery partner base. In addition, given the large market opportunity in India, we believe Zomato will focus on growing in Indian markets which will enhance the value for all stakeholders. On the flip side, the company is financially making losses (minimized as compared to last year), which remains a concern however the management has strong growth plans going ahead which will aid revival. Considering its financial performance, it would be prudent to wait for a meaningful turnaround to change the long term stance. However, investors may consider subscribing for the listing gains.”

SMC: “Score 2/5 ; Zomato is an online restaurant aggregator and is consolidated format of businesses of – global leaders like Yelp, Doordash, OpenTable. The company targets to leverage current capabilities into expanding other related business. However, these are futuristic business model and can be scaled up much higher without much capex going ahead and hence global investors might find it still attractive from a long term view. The company will be among the first from the list of unicorn startups in India and the first of an online food aggregator. However, we believe the Issue is meant only for investors with only high risk appetite and hence carry a cautious view on it.”

SP Tulsiyan Website: “Growth in food delivery/dining is secular, and Zomato is trying to play it via a First Mover IPO. But, evolving business model, requiring growth capital for scale up and new verticals is unacceptable, which coupled with a competitive landscape and unjustified IPO pricing making the risk reward unfavourable.”

Yes Securities: “The IPO is expected to generate lot of interest given the company uniqueness, large opportunity size and some evidence of scale economies, but the valuations look really expensive on conventional parameters at 25x FY21 EV/sales vs 10x for global peers and 12x for Indian QSRs, with the path to profitability also unclear. While the current frenzy should deliver some listing gains, we would await more clarity on capital allocation plans, competitive activity and unit economics over the next few quarters to provide a more nuanced fundamental view on the company. Out of Rs 93.8bn IPO proceeds, Rs 90bn will come to the company out of which Rs 67.5bn will be utilized for organic and inorganic growth initiatives. Key risks going forward would be emerging competition from well‐funded groups and NRAI, losses from new investments and diversification initiatives.”


Standard disclaimer: Standard disclaimer: I am not a SEBI registered analyst /investment adviser and above information is collated from various online sources and is for educational purpose only. Please visit individual brokerage sites to read the actual reports. Please do not make your investment decisions based on this info as it is not complete and exhaustive. Please do your own due diligence as stock market investments have high degree of inherent risk.

Leave a Reply