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Post IPO, Zomato could become India’s 78th most valuable firm by market capitalisation
Photo: Ramesh Pathania/Mint
By Ravindra Sonavane, Tarush Bhalla
9th of July, 2021
The much-anticipated initial public offering (IPO) of Zomato Ltd could propel the 13-year-old food delivery company into the top 80 most valuable companies in India.
Zomato, the country’s largest food delivery platform, will have a post-money valuation of 59,623 crore at 76 per share, the upper end of the price band of 72-76 announced on Thursday by Zomato, giving it the 78th position among listed companies in India by market value. The subscription period for the share sale will begin on July 14th.
Long-established and well-known names such as Hero MotoCorp Ltd, India’s largest two-wheeler manufacturer; drugmaker Aurobindo Pharma; Piramal Enterprises; Apollo Hospitals, Biocon Ltd, and Bandhan Bank will be valued higher than Zomato.
During the pandemic, startups like Zomato are benefiting from an explosive growth in users as people order everything from food to groceries instead of dining out or going to stores. Experts say that some of these pandemic-era habits are unlikely to change. The rise in smartphone users has also aided consumer startups, with several of them planning to go public in India in the coming months.
“The management team met with over 300 institutional investors from the United States, Europe, Asia, and India. Zomato is the largest food delivery company in India, and it is the first of its kind to go public. They also see several macro themes, such as a large growing addressable market, room for expansion, and increased technology adoption,” said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking, which is handling the share sale.
The issue, which closes on July 16, includes a 375-crore offer for sale by the company’s early investor, Info Edge, as well as a 9,000-crore fresh issue. On July 27, the stock is expected to be listed on the stock exchanges.
“Proceeds will be used for organic growth of the business, including customer acquisition, growing the delivery infrastructure and technology platform. The second is for inorganic initiatives, which will include minority share purchases or full buyouts. The third bucket is for general corporate purposes, where we will invest up to 25% of the proceeds,” said Zomato’s chief financial officer, Akshant Goyal.
Post the IPO, Zomato will have about $2 billion, or roughly ₹15,000 crore in cash in the bank, he added.
Zomato’s revenue from operations fell by 23.5 percent to 1,993.7 crore in FY21 due to lockdowns, but the company claims that order numbers have recovered. “Our meal delivery company saw the greatest gross order volume ever in Q4 of 2021. From an economic standpoint, we are in good shape, and this will show in future results,” Goyal added.
Despite eateries opening up, Gaurav Gupta, co-founder of Zomato, claimed the firm hasn’t observed an impact on order volumes. “In our experience, if a customer orders from a restaurant 2-3 times, it becomes a habit. Another thing is that the growth in our tier-II, -III, and -IV markets has pleasantly surprised us. Food delivery has become commonplace among consumers. And we feel there is still a sizable market of people who haven’t used meal delivery apps,” Gupta said.
According to Zomato’s prospectus, 6.8 million customers ordered food on the platform every month in FY21, with an average monthly frequency of around three times. In March 2021, Zomato has 169,802 delivery partners and 148,384 eateries on its platform. As of March 31, it had 1.5 million Pro Members and 25,443 Pro Restaurant Partners.
“Food delivery is the bedrock, accounting for more than 80% of sales, and is currently a two-player industry, though additional competition is possible. Revenues were hurt by Covid, but unit economics improved, and the company’s long-term viability is unknown. The use of 45 percent earnings for M&A, nutraceutical ventures, and other purposes has to be clarified. In a note to clients, Jefferies India warned that technical considerations could fuel investor interest, which could have larger consequences.
The original version of this article appeared on livemint.com.
Zomato
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