One of 2021’s most anticipated IPO has finally been set in motion as Zomato recently filed its Draft Red Herring to get into the public market and raise upwards of ₹8,000 Cr through the public issue. The current pandemic without a doubt has changed the way businesses used to think and operate. The lockdowns have resulted in the massive cavalry charge of e-commerce firms with the promise of minimum social contact and prioritised hygiene. One of the biggest players of this trend is the Gurugram based firm, Zomato. Starting off as a restaurant review site, Zomato quickly spiralled into becoming India’s largest food aggregator and deliverer.
Fundamentals
One of the strongest suites for the company are its numbers. Zomato has grown by a margin of seven since 2018 compared to the near four times growth in the larger food delivery industry.
In terms of the IPO, one of the existing stakeholders in Zomato is already listed on the market, Naukri.com which is participating in a ₹750 Cr marketing offering of its own along with Zomato planning to raise ₹7500 Cr through fresh issue of shares bringing up the IPO value to a total of ₹8,250 Cr.
Zomato has been remarkably successful in raising capital to expand its business reach as evidenced by the company raising $250 Million in its pre-IPO primary fundraise months ago valuating at $5.4 Billion from top investors to the like of Kora Management, Tiger Global, Fidelity, Dragoneer, Bow Wave, to name a few.
These investments however were seperate from the $660 Million priary round closing in December 2020 raising valuation all the way up to $3.9 Billion from new investors such as Tiger Global, Kora, Luxor, Fidelity, D1 Capital, Baillie Gifford, Mirae, and Steadview.
All these investments arguably has gone to good use as the company’s springing back from the pandemic induced tanking in sales show. Careful pivoting by CEO Deepinder Goyal however resulted in quicker recovery as well as exceeding in pre-covid levels throughout India from a higher demand of online delivery services. However, with a revenue of ₹2,486 Cr for FY20 its losses widened to ₹2,451 in the same time period as the pandemic resilted in orders volume shrink and dine out revenue stop completely.
The company’s fiscals as detailed in the DHRP are as follows-
The IPO Market
With Zomato being one of its more illustrious entrants, the IPO comes at a time when the Indian startup ecosystem is going through a period of rampant development and prosperity. So far, India has seen the emergence of eleven unicorns and we are not yet halfway through the year. This is in sharp contrast to the total of 11 in all of 2020. This growth is being fueled by the post-pandemic digitisation leading to a lot of demand in the space especially considering the point that India presents itself as the largest consumer market and with more upcoming internet IPOs with the hopes of a profitable exit.
Remarks
The Zomato IPO is not as black and white as it may seem to be on the surface. Turning unicorn in 2015 with a valuation exceeding $1 Billion and growing its valuation steadily reaching over $4 Billion as estimated by analysts. However, it is not easy to assume that such valuation is sustainable. The market presents a sense of volatility right now and food market in India is mostly dominated by localised unorganised sectors.
Secondly, the food delivery market today is run by a duopoly where Zomato and its Bangalore based rival Swiggy are vying for a better market share. There could however be trouble for both with the entry of Amazon India should the later decide to go on an aggressive expansion policy and flex its capital power. And finally the industry pivots on being the best as the cost to switch is non-existent and I use both Swiggy and Zomato interchangeably myself.
So, what does all of it mean for the Zomato IPO? Well, without a doubt the company is solving a problem which will only grow in the future given India’s demographic buildup. However, the company must strive to maintain its grip over standards and quality while pivoting with time to ensure appropriate market relevance further down the line for investors to make sense investing in the Zomato IPO.