Zomato, India’s leading food delivery startup, backed by Ant Group, has filed for an IPO, an initial public offering of up to 1.1 billion USD, according to draft papers submitted to the market regulators.
Notably, Zomato IPO is among the most awaited in the recent capital market considering that it would be one of the first technology unicorns to be listed in India.
The online food delivery sector has witnessed significant growth in the past few years, with Zomato and Swiggy clashing head-on to clock market share.
The total revenue of Zomato in the fiscal year 2020 had jumped more than two-fold to around 394 million USD from the last financial year (1).
Zomato, founded in 2008 in Delhi, employs over 5k people. The food aggregator recently secured 250 million USD from investors, including Fidelity Management and Research Co., Tiger Global, and Kora Management, and others, valuing the company at 5.4 billion USD, as per an exchange filing in February this year by Info Edge India Pvt., an existing backer. Its shares were up 1.5%, holding about 19% stake in the company after recent fundraising.
The company recently amended its memorandum of association earlier this month in preparation for its much-awaited public listing, renaming itself Zomato Ltd to become a public limited company.
According to reports, the food delivery app plans to raise about 700 million USD to 1 billion USD via the IPO. Zomato has finalized with Morgan Stanley, Kotak Mahindra Bank, Bank of America, and Credit Suisse as lead merchant banks for the purpose (2).
Gobbling Zomato’s IPO
Zomato has finally moved the SEBI Securities and Exchange Board of India for its much-awaited public market debut. The food aggregator is offering equity shares worth over 8,250 crore INR, out of which 7,500 crore INR will be a new issue, while 750 crore INR is a sale offer from one of its earliest backers, Info Edge.
Notably, Deepinder Goyal and Pankaj Chaddhah founded the company in 2008 (3). Its IPO has been among the most awaited ones in the Indian tech ecosystem. The startup had made several changes in its administration and management ahead of the market offering. It includes naming Goyal as the Managing Director for the upcoming five years to converting itself from a private firm to a limited public organization – Zomato Limited.
Zomato was last valued at 5.4 billion USD, has raised several funds over the year as it prepared for the market debut (4).
Here is a look at Zomato’s recent fundraising spree:
The startup has also stated that it may go for a pre-IPO placement for an aggregate sum not exceeding worth 1,500 crore INR. The company stated that (5) ‘the pre-IPO Placement, if undertaken, would be at a price to be decided by the firm in discussion with the managers and completed before the filing of the Red Herring Prospectus with the RoC.’
The food delivery leader has expanded its market at least three times over in the past four years. Revenue at the end of 2020 for the preceding nine months was 1,301 crore INR, compared to 460 crore INR for the financial year ending in March 2018.
Zomato has also stated that it expects the costs to surge over time, and ‘losses would keep on considering significant investments expected towards growing the business.’
Zomato’s IPO has come amid the grueling second wave of the coronavirus pandemic in the country, which disrupted the restaurant industry while also boosting online food delivery. Over the last year, Zomato had stated that the coronavirus pandemic had pushed it closer to profitability, and one can also see its DRHP filing (6).
In a blog post last year (7), Deepinder Goyal stated that the coronavirus pandemic has set us back by a year or so in terms of the company’s size. However, a year is only a fraction when building a company for the next hundred years.’
Zomato and its top rival Swiggy are the major players in the Indian online food industry. According to a CLSA report, the Indian food-tech segment will grow to 11 billion USD in the upcoming five years. And of which, Swiggy presently holds a 47% market share while Zomato holds 45%.
There are expectations that the new entry, Amazon, would also make a market in the market. It is also worth highlighting that Zomato had acquired one of its rivals, UberEats (8), in January last year.
And Zomato has not missed the growing competition in the food delivery segment in its DHRP filing. The company stated that ‘the present and future competitors may enjoy competitive advantages like greater name recognition, greater category shares in certain markets, longer operating histories, established relationships with local delivery businesses and restaurants, market-specific knowledge, substantially greater financial, technical resources, and more successful marketing capabilities.’
Info Edge to Sell Stake
In its DRHP file, Zomato stated that its IPO would be an amalgamation of fresh issue of equity shares and an OFS, Offer For Sale by existing shareholder, Info Edge Ltd, the parent company of Naukri.com.
On Tuesday evening of 27th April 2021, Info Edge, which holds about a 19% stake in the food delivery leader, informed the bourses that its Board of Directors has approved to participate in the Zomato’s OFS (9).
According to the filing, the terms and conditions of these are specified in the Draft Red Herring Prospectus, the Red Herring Prospectus, the Prospectus, and other offer agreements and documents.
On 23rd April, Zomato announced five independent directors on its eight-member board, including four women.
Zomato has also stated that it may consider a private placement of 1,500 crore INR placement ahead of the IPO. The move is likely to cut the size of the new issue that the startup has proposed so far.
Additionally, the food aggregator would utilize funds secured via organic and inorganic growth with general corporate purposes.
The online food delivery startup considers Ant Financials, Sequoia, Info Edge, and Uber as some of its most prominent investors. Zomato has strengthened its position in the two-player food delivery industry with the latest funding round in February this year, putting the company at a 5.4 billion USD post-money valuation (11).
According to reports (12), the company completed its internal IPO review and reviewed other processes on 22nd April. SEBI would likely take around two weeks to review the DRHP, and the final launch would depend on the market conditions, said a source familiar with the development.
The Big Bang IPO Preparations
The move came after several weeks since Zomato converted itself to a public company from a private company by amending its Memorandum of Association and renaming itself Zomato Limited.
According to experts, the move to become a public limited firm is needed as Zomato is considering filing the DRHP with SEBI and relevant domestic stock exchanges to list its shares on one or more stock exchanges. Originally, Zomato had incorporated itself as a private limited company on 19th January 2010 (13).
Notably, DRHP is among the initial documents that a company wishes to list its equity shares on a stock exchange file with SEBI. A DRHP is an exhaustive document of the essential details of a company. It includes incorporation date, business model description, risks, and several other things.
The 250 million USD Zomato raised in its pre-IPO fundraise was on top of the 660 million USD preliminary round it had closed in December 2020 at a valuation of 3.9 billion USD from ten new investors, including Steadview, Mirae, Baillie Gifford, D1 Capital, Fidelity, Kora, Luxor, and Tiger Global.
At that time, Goyal had stated that the company is in the process of closing the second round of 140 million USD and securing primary capital as a war-chest for future acquisitions and mergers, and fighting off price wars from the competition.
Recovery Amid the COVID-19 Pandemic
After the initial coronavirus shock in March last year, Zomato stated in September 2020 that the online food delivery market has recovered and even exceeded the pre-pandemic level in several large pockets in the country as people are embracing online ordering.
Deepinder Goyal, the co-founder of Zomato, stated that the tailwinds for the food delivery businesses are pretty visible and believes the industry’s growth would accelerate post-pandemic. He also added that the burn rate is significantly low, and its market share is growing in all regions.
The food aggregator has reported a revenue of 2486 crore INR for the fiscal year 2020, even as its losses widened to 2451 crore INR during the same period as the pandemic and nationwide lockdown shrunk order volumes and revenue.
The IPO of Zomato has come when the Indian startup ecosystem is witnessing heightened funding activity. The first initial month has already produced eleven unicorns valued at more than a billion dollars or more compared to 11 in all of 2020 (14).
Several factors’ combination is driving the boom post-pandemic. Digitization has led to the growth of internet services, and there is an availability of enormous capital. India is among the largest consumer market still open, and upcoming internet IPOs in India are raising hopes for securing an exit.
India has witnessed only a handful of the internet going public in the past two decades. Apart from Zomato, Nykaa, Policybazaar, and Delhivery are also coming up with plans for a public listing. There is also a buzz of Freshworks and Flipkart listing in the US market. These IPOs would indicate the success of the Indian booming startup economy, and it could lead to more capital inflows into private markets.
At 1.1 billion, Zomato IPO would be the country’s biggest this year, surpassing Indian Railway Finance Corp’s IPO, at 649 million USD in January, as per data compiled by Bloomberg (15).
According to anonymous sources, the company could complete its listing before the end of September. However, the deliberation is ongoing, and the details of the offering, such as timeline and size, could change.
The coronavirus pandemic has driven several Indian consumers to shift online, bolstering the fortunes of the internet companies such as Zomato as they aim to go public. According to Bloomberg News, Nykaa is planning to list the company in the domestic market and likely seek a valuation of at least three billion USD.
The IPO volumes worldwide are heading for the best quarter at least since 2009, with more than 188 billion USD raised so far this year.