Zomato IPO: All You Need To Know

Zomato Ltd. will launch its three-day initial public offering on July 14, the first by a food tech company in India.

The maiden offer by the food discovery and delivery firm will comprise a fresh issue of Rs 9,000 crore and sale of shares worth Rs 375 crore by existing investors, according to its red herring prospectus. A large part of the proceeds of Rs 6,745 crore will be used to fund the company’s organic and inorganic growth initiatives.

The price band has been fixed at Rs 72-76 apiece, giving it a market value of up to Rs 59,623 crore—or about $8 billion.

Zomato has raised Rs 4,196.5 crore from 186 anchor investors, including 74 schemes of 19 domestic mutual funds.

Key Details

• Face value: Re 1 per share.

• Price band: Rs 72-76.

• Fresh issue: Rs 9,000 crore.

• Offer for sale: Rs 375 crore.

• Minimum bid size: 195 equity shares.

• Listing: National Stock Exchange and BSE.

• Book running lead managers: Kotak investment Banking, Morgan Stanley, Credit Suisse, BofA Securities, Citi and Link Intime India.

Zomato is going public as a professionally run company and not a promoter-led company. That’s a different approach from the likes of IndiaMART Intermesh Ltd., Just Dial Ltd. and Info Edge (India) Ltd.—all of which are promoter-driven.

That’s also because none of Zomato's 74 shareholders hold more than 25% stake in it.

Founder and Chief Executive Officer Deepinder Goyal owns 5.5% stake, while InfoEdge is the largest shareholder with 18.5% stake.

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.

Going ahead, Zomato will focus on India as a key market.

“We're very focused on India as an opportunity and a lot of mindshare goes there," Gaurav Gupta, co-founder and chief supply officer at Zomato, told BloombergQuint in an interview last week. "We believe we have so much to do in India and that’s how we're building up.”

Other Highlights

• Delivery partners: 1,69,802.

• Active restaurant listings: 3,89,932.

• Active food delivery restaurants: 1,48,384.

• Present in 525 cities in India and 23 countries outside India.

• 15 lakh Zomato Pro members and 25,443 Pro restaurant subscribers.

The company plans to use the offering proceeds to fund organic and inorganic growth initiatives. Investment will also go for general corporate purposes.

It's also entering the high investment and competitive grocery segment which is grocery. While it wants to do a pilot on its own, it's acquiring 9% stake in the online grocer Grofers.

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.

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.

• 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.

(Corrects an earlier version that misstated the face value.)