Food delivery giant Zomato IPO seeks to raise Rs 9,375-crore through its initial public offering and will be the largest in last sixteen months since the SBI Card IPO. , Zomato IPO will open for subscription on July 14. and shall close on July 16, 2021. The offer comprises a fresh issue of Rs 9,000 crore and an offer for sale of Rs 375 crore by Info Edge. The price band for IPO has been fixed at Rs 72-76 per share.
Zomato IPO Details:
|Issue Period||14th July-16th July, 2021|
|Issue Details||Fresh Issue of Equity Shares aggregating upto ₹ 9,000 Cr|
|+ Offer for Sale of Equity Shares aggregating upto ₹ 375 Cr|
|Face Value||₹ 1/-|
|Issue Size (No. of Shares)||1,23,35,52,631|
|Issue Size (₹ Cr)||₹ 9,375 Cr|
|Price Band||₹ 72 – 76|
|Bid Lot||195 Shares and in multiple thereof|
|Employee Reservation||Upto 6,500,000 Equity Shares|
|Issue Structure :|
|QIB||75% of the net offer|
|NIB||15% of the net offer (₹ 1399 Cr)|
|Retail||10% of the net offer (122,705,263 Shares-₹ 933 Cr)|
|Applications for 1x retail||6.29 Lacs|
|GCBRLM||Kotak Mahindra Capital, Morgan Stanley India, Credit Suisse Securities|
|BRLM||BofA Securities, Citigroup Global Markets|
|Registrar||Link Intime India Pvt. Ltd.|
- ANCHOR ISSUE: Ahead of its IPO, Zomato garnered Rs 4,195 crore by share sale to anchor investors. Zomato allotted these shares to a186 foreign investors as well as domestic investors. he anchor investors include New World Fund, Tiger Global, and BlackRock. Among the domestic investors Axis Mutual Fund, SBI MF, and HDFC MF received the allotment. AS per some sources, the anchor book saw over 30 times more demand than the shares on offer. The total interest generated was in excess of Rs 1 trillion while y=the shares on offer were for Rs. 42 billion only.
- Zomato Zomato Limited (“Zomato”) was incorporated on January 18, 2010 as “DC Foodiebay Online Services Pvt. Ltd.”
- Zomato was founded by Deepinder Goyal and Pankaj Chaddah, now has a presence on every continent.
- Zomato started as a restaurant menu listing and search company. Later about 4 years ago, it shifted more to the food delivery business model.
- Zomato is one of the leading Food Services platforms in India in terms of value of food sold, as of March 31, 2021.
- Zomato is backed by Jack Ma’s Ant Group Co,
- During Fiscal 2021, 32.1 million average MAU visited their platform in India. As of March 31, 2021, they were present in 525 cities in India, with 389,932 Active Restaurant Listings. Their mobile application is the most downloaded food and drinks application in India in each of the last 3 fiscal years on iOS App store and Google Play combined.
- Apart from the B2C business, Zomato also provides B2B business of one-stop procurement solution, Hyperpure, which supplies high quality ingredients to restaurant partners.
- Zomato also offers exclusive paid-membership program-Zomato Pro, which unlocks flat percentage discounts for the customers at select restaurant partners both for food delivery and dining-out .
- Zomato is India’s leading Food Services platforms in India in terms of value of food sold. Also, the company’s mobile application is the most downloaded food and drinks application in India in each of the last three fiscal years since FY19 to FY21 on iOS App store and Google Play combined.
- Zomato has one of the largest hyperlocal delivery networks in India in terms of number of delivery partners as of March 31, 2021.
- Zomato’s delivery network collected food from the restaurant partners and delivered it to customers with a median delivery time of approximately 30 minutes in FY21.
Zomato IPO: Financials
|Particulars / (₹ In Cr)||2021||2020||2019|
|Revenue from Operations||1,993.79||2,604.74||1,312.59|
|Revenue Growth (%)||-23.46%||98.44%||–|
|Adj. EBITDA as stated||-325.11||-2,206.17||-2,143.81|
|Loss Before Tax||-815.12||-2,385.60||-1,010.51|
|Net Loss for the year||-816.43||-2,385.60||-1,010.51|
|Equity Share Capital||0.03||0.03||0.03|
|Instrument equity in nature CCPS||454.93||252.4||243.72|
|Equity Post IPO||785.00|
|Market Cap / Sales||29.9|
- Strong network effects driven by their unique content and transaction flywheels.
- The widespread and efficient on-demand hyperlocal delivery network
- A technology and product-first approach to business
- Zomato is a strong consumer brand recognized across the length and breadth of India.
- Signifcant potential exists to expnd to Tier II/III cities.
- Apart from Swiggy, Zomato may face competition from new entrants such as Amazon.
- Zomato may continuously need to discover more appealing methods to keep people interested without sacrificing unit economics, which will be a difficult.
- Amazon’s expected entry into the food delivery business.
- Valuations being demanded are not justified.
Zomato IPO: Assessment
- Increased access to internet facilities and smart phones has bolstered Food delivery services.
- Info Edge is the largest shareholder in Zomato with 18.68 percent stake.
- Info Edge, has lowered the offer for sale of Zomato shares to Rs. 375 crores from the original amount of Rs. 750 crores. hZomato is the first home grown unicorn tech company to be listed on exchanges with a market cap that will propell it into top 100 listed entities in the ountry.
- Zomato is one of the leading players in the food tech industry in India with a market share of ~45%.
- Zomato offers multiple services through its food platform in the form of search and discovery, food delivery, customer generated contents, Hyperpure and loyalty program such as Zomato Pro.
- Zomato has an exclusive paid-membership program, Zomato Pro, which unlocks flat percentage discounts for their customers at select restaurant partners across both food delivery and dining-out offerings.
- As of March 31, 2021, Zomato had 1.5 million Pro Members and over 25,443 Pro Restaurant Partners in India.
- The company’s consolidated loss narrowed to ₹816 crore in FY21 as compared to loss of ₹2,385 crore in the previous year.
- Average order value increased from Rs 264.6 in Q1FY20 to Rs. 395.4 in Q4FY21.
- Total revenue per unit delivered increased from Rs. 58.9/per unit in FY2020 to R 89.8/unit inFY2021.
- As on March 31,2021, the company had cash balance of Rs. 903.66 crore and liquid investments to the tune Rs. 2205.25 crore.
- Out of total fresh issue of Rs. 9,000.00 crore, Rs. 6,725.00 crore will be utilized for funding organic and inorganic growth which includes creating delivery as well as technology infrastructure.
- The company incurred loss of in FY2019, FY2020 and FY2021 and Losses are likely to continue in the foreseeable future.
- Zomato’s ability to maintain and strengthen its market leadership in India will be put to test as rival Swiggy has covered lot of ground . While Zomato has the first mover advantage Swiggy has picked up a lot.
- Zomato is being sold at considerably high valuations which may be reflective of sacristy premium and as such donot seem reasonable.
- Based on IPO price, Zomato will command a market cap of Rs. 59,600 cr which will be 28-29 times its FY21 revenue and appear to be on higher side. This is higher than global peers. Only justification can be that India has lower markket penetration in foodn deliverfy business and growth rates in India will be much higher.
- Zomato raised $250 million (~ ₹1,800 crore) in February 2021 in funding from Tiger Global, Kora and some others, which valued the firm at around ₹40,000 crore. Now few months later it is seeking much higher valuations.
- Allocation in Zomato IPO is only 10% to retail due to past losses.
- Despite steep valuations, The IPO may get good response from institutional and foreign investors. This trend is indicated by reports that the anchor potion saw demand as high as 1.5 trillion rupees from large funds compared with the 42 billion rupees on offer in the anchor potion indicating strong fund appetite for the issue even at such steep pricing.
- institutional investors and funds particularly foreign funds are ;likely to ensure a decent response to issue and HNIs could join in if GMP stays stable.
- Zomato IPO was last reported to be commanding a GMP of about Rs. 8-9 on 13-07-21.
- I intend to apply in Zomato IPO only on Day 3 after seeing QIB response as Iam not convinced by the valuations being demanded by the company. My interest will be limited to possible listing or very short term gains if they materialize.
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.