Online food ordering platform Zomato has filed draft papers with the Securities and Exchange Board of India (Sebi) for a Rs 8,250-crore initial public offering (IPO).
The share float comprises fresh issue of equity shares worth Rs 7,500 crore and offer for sale worth Rs 750 crore by Info Edge (India) Ltd. At present, Info Edge holds 18.55 per cent in Zomato, while the Alibaba group owns 16.53 per cent of the restaurant aggregator via Alipay and Antfin. On Tuesday, Info Edge had said that it will sell stake worth Rs 750 crore in the Zomato IPO.
Zomato’s much awaited IPO comes at a time the country is passing through a second wave of the Covid pandemic. This has led to a rise in demand for its services. In a note earlier this year, analysts at Bernstein had said that India’s food services market is large and expected to reach $74 billion by 2023-24.
“Organised food service is growing faster and expected to reach a 52 per cent market share by 2023-24. We expect online penetration to expand to 16 per cent by 2023-24 and the market size to reach $12 billion growing at 43 per cent CAGR,” the brokerage had said.
Response to the Zomato offering will be keenly watched as there are others such as Mobikwik, Delhivery and online insurance portal Policy Bazaar which are also set to come out with IPOs.
It also comes at a time the country’s start-up universe is seeing strong fund raising. Around 10 start-ups made it to the unicorn (whose valuation is above $1 billion) in the first four months of this year.
In February, Zomato had raised $250 million (over Rs 1,800 crore) in funding from Tiger Global, Kora Management and others, valuing the online food ordering platform at $5.4 billion.
Zomato said proceeds from the fresh issue would be used towards funding organic and inorganic growth initiatives and general corporate purposes.
The company pointed out that it will continue to invest in three core areas for the growth of its business.
These include customer and user acquisition, delivery infrastructure and technology infrastructure.
The company added that it has made these investments in the past and they will continue to be critical for the growth of its business in the future.
According to Zomato, it has in the past also made significant investments in marketing and promotions towards customer acquisition and retention. These investments include acquisition and retention costs through which it offers discounts to acquire new customers and users and retain existing ones.
It also spends on customer, user and restaurant partner appeasement in the form of refunds.
Further, it also incurs marketing and branding costs.
Here, Zomato said that it will continue to look at acquisitions to grow its presence in India. The company is not new to the inorganic route as it had acquired Uber Eats India assets in 2019-20. Similarly, in 2017-18, it had bought Carthero Technologies Pvt Ltd which enabled it to directly provide logistic services for online orders placed on the Zomato platform.
Zomato posted a consolidated income of Rs 2,742.73 crore for the year ended March 31, 2020 and during this period, its losses rose to around Rs 2,367 crore.
Kotak Mahindra Capital Company Ltd, Morgan Stanley India Company Pvt Ltd and Credit Suisse Securities (India) Pvt Ltd are the global co-ordinator and book running lead managers to the issue. BofA Securities India Ltd and Citigroup Global Markets India Pvt Ltd have been appointed as merchant bankers to the public issue.