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Zomato IPO is here!
The Gurugram-based Indian unicorn startup Zomato is set to launch its IPO on July 14, 2021. It will be among the first from a long list of Indian unicorn startups to launch an IPO and also be the first among Indian online food aggregators to do so.
The Rs 9,375-crore IPO is being touted as the second-biggest IPO since SBI Cards and Payment Services’ Rs 10,341-crore issue in March 2020. The valuation of Zomato business has apparently risen by 75% in past four months alone (from $5.2 billion in last funding round to $9 billion in IPO at upper range).
The public offer is expected to take Zomato's valuation to $9 billion.
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Incorporated in 2010, Zomato Limited is one of the leading online Food Service platforms in terms of the value of food sold as of Dec 31, 2020. Its B2C offerings include food delivery and dining-out services where customers can search and discover restaurants, order food delivery, book a table, and make payments for dining out at restaurants while under the B2B segment, it generates revenue from Hyperpure (supply of high-quality ingredients and kitchen products to restaurants) and Zomato Pro, customer loyalty program.
Who owns Zomato
2) IPO Details:
The issue comprises fresh issuance of shares, aggregating up to Rs 9,000 crore. Additionally, there’s an offer for sale of up to Rs 375 crore by current shareholders.
IPO Date: Jul 14, 2021 - Jul 16, 2021
Face Value: ₹1 per equity share
IPO Price: ₹72 to ₹76 per equity share
Market Lot: 195 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Jul 22, 2021
Initiation of Refunds: Jul 23, 2021
Credit of Shares to Demat Acct: Jul 26, 2021
IPO Shares Listing Date: Jul 27, 2021
Founded in 2008, Zomato has grown from being a food discovery platform to a food services platform with three businesses:
- Food delivery—Works as food delivery and discovery platform.
- Dining out—Provide tools for restaurant owners to acquire customers.
- Hyper Pure—Provides ingredients and kitchen products to restaurant partners.
For its delivery and discovery business, Zomato charges commission from the restaurant partners who list on its app and to deliver food. Restaurants also pay for increased visibility on the platform. All of this accounts for a majority of the company's revenue. Delivery charges, including tips, which are paid by customers are passed on to the delivery partners. In dining, where it allows customers to search, discover and review the restaurants, it monetises the business through advertising sales, and restaurateurs pay the company for visibility as well.
The hyper pure, or the B2B supplies segment, is a transaction-based model based on demand. Lastly, Zomato Pro is a subscription-based offering to customers in which the company charges fixed monthly or annual fees and provides customers with extra offers on dine-in and deliveries. Its international segment contributes about a tenth of its business and 2.5% of its total assets, according to its IPO filings. However, it accounts for more than 15% of liabilities, and over 13% share in loss in FY21, the filings revealed.
The pandemic impacted Zomato's business as India remained under a lockdown in the first couple of months of the last fiscal before the economy reopened gradually.
- Revenue dropped 23.4% year-on-year to Rs 1,994 crore in the year ended March 2021.
- Loss, however, narrowed by nearly a third over a year ago to Rs 812 crore. That came as it cut discounts and costs per order.
5) Zomato Vs Swiggy
Zomato not only faces competition from another food-tech unicorn Swiggy, with near equal market share, but also from the likes of cloud kitchen platforms like Rebel Foods. Swiggy with its unlisted status will also have less investor pressure on profitability.
There is also threat from Amazon.com Inc., which is already piloting its food delivery vertical in Bengaluru for the time being, and plans to expand gradually.In the last couple of months, restaurants have also come together against the online delivery apps due to high take rates and data masking by the aggregators, and have started promoting direct ordering platforms like Thrive and DotPe.
7) Grey Market premium:
(As on Jul 13, 2021) Zomato shares were trading at a premium of 10% in the grey market.
8) Objective of IPO:
The net proceeds from the IPO will be utilized towards the following objectives;
- Funding organic and inorganic growth initiatives.
- Meet general corporate purposes.
- Among the leading Food Service Delivery platforms.
- Recognized consumer brand equity across India.
- Widespread and efficient on-demand hyperlocal delivery network.
- A strong network of 131,233 restaurants and 161,637 delivery partners.
- As of December 31, 2020, Zomato has established a strong footprint across 23 countries with 131,233 active food delivery restaurants, 161,637 active delivery partners, and an average monthly food order of 10.7 million customers.
- Zomato has history of net losses, which the company expects to rise in the future.
- Potential third wave of Covid-19 poses a risk and delay its recovery path.
- Zomato may not be able to maintain its growth rate as the accelerated growth of business stemming from the Covid-19 pandemic may not continue in the future.
- Determination by a regulatory or judicial authority, that any of its business activities are being, or have been, conducted in violation of the policies could attract regulatory sanctions, including monetary penalties.
- Maintenance of brand equity is necessary for the business to continue to attract and retain customers and, in turn, restaurant partners in the network. Any failure on that front could impact the business growth.
- Though the online food service industry is currently a duopoly but as the industry matures, it can attract large players with deep pockets.
- It may not be able to undertake certain commercially attractive business activities or investments without prior government approval or at all.
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Research Analyst (SEBI Regd.)
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