With the Online food delivery market at the brink of advancement, Zomato IPO is greeted with a fair share of optimism and caution about the company’s risks. With this IPO opening for subscription on Wednesday, Zomato has become the first Indian food aggregator space Unicorn to be listed on the bourses.  

Zomato Timeline and Key Acquisitions

Source: INDmoney.com

Zomato has acquired 12 startups globally:

• July 2014: Zomato bought Menu-mania.
• The company pursued other acquisitions including lunchtime.cz and obedovat.sk for a combined US$3.25 million.
• September 2014: Zomato acquired Gastronauci (Poland).
• December 2014: acquired Cibando (Italian restaurant service)
• 2015 : Zomato acquires  Urbanspoon (Seattle-based) for $60 million.
• Other acquisitions of 2015: Mekanist, MapleGraph (Delhi-based) that built MaplePOS (renamed Zomato Base), and NexTable (US-based).
• 2016: acquired Sparse Labs (logistics technology startup) and Runnr (food delivery startup), 2017 (renamed from Roadrunnr when it acquired TinyOwl in 2016).
• September 2018: acquired TongueStun Food (Bengaluru-based e-marketplace), for $18 million in cash and stock.
• December 2018:  acquired TechEagle Innovations (Lucknow-based startup), Zomato  feels that this will pave the way towards drone-based food delivery.
• 21 January 2020: acquired its rival UberEats’ (India) giving UberEats 10% of the combined business.
• 29 June 2021: signed a deal with Grofers to invest $120 Million in the online grocery firm by acquiring 9.3% stakes of the company.

Suggested Read: The Unstoppable Zomato- A Success Story To Watch Out For Sure

Zomato IPO Salient Facts

Source: Trade Brains

• Zomato IPO has opened for subscription. The 3-day subscription period will end on Friday, i.e July 16 2021.
• Timeline of Zomato IPO : 

                   Open date :  Jul 14, 2021

                   Close Date : Jul 16, 2021

                   Basis of Allotment : Jul 22, 2021

                   Refund Initiation : Jul 23, 2021

                   Credit of shares to Demat : Jul 26, 2021

                   Zomato IPO Listing : Jul 27, 2021

• Zomato IPO Price : The price band of Zomato IPO has been fixed at Rs 72 to Rs 76 per equity share.
• Zomato IPO Lot Size : Zomato IPO lot size is 195 shares. A retail investor is allowed to invest up to 13 lots, as per details provided by chittorgarh.
• Zomato IPO has an issue of Rs 9,000 crore. Additionally it has an initial public offering with an offer for sale (OFS) by Info Edge (India) Ltd of Rs 375 crore. 65 lakh equity shares are reserved for employees of Zomato.
• The Zomato IPO would be used for funding organic and Inorganic growth initiatives and for corporate purposes according to information in the draft red herring prospectus (DRHP) of Zomato.

Global coordinators and book running lead managers are Kotak Mahindra Capital Company, Morgan Stanley India Company, and Credit Suisse Securities. 

The book running lead managers to the offer are BofA Securities India and Citigroup Global Markets India.

Zomato IPO Performance

At the first day of the share sale the retail investor part was subscribed approximately 2.90 times.

At the upper end of the ₹72-76 price band, the Zomato IPO attracted retail bids worth Rs 2,655 crore. The segment was reportedly fully subscribed within a few minutes, by the marquee anchor investors that invested ₹4,196 crore on Wednesday. Zomato allocated 552.17 million equity shares, to anchor investors, at a price of ₹76 per share.

Some of the anchor investors include Tiger Global Investment Fund, Blackrock, Fidelity, JPMorgan, Morgan Stanley, T Rowe Price, Canada Pension Plan Investment Board, Government of Singapore, SBI Mutual Fund, Axis Mutual Fund, Kotak Mutual Fund, UTI Mutual Fund, Motilal Oswal AMC, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Tata Mutual Fund, Goldman Sachs India, Abu Dhabi Investment Authority, Franklin Templeton, HSBC Asset Management (India) etc.

Overall subscription was 1.11 times on the first day. Zomato IPO’s issue size of 681.38 million shares received bids for 756.43 million shares. The part of the share sale reserved for non institutional investors was subscribed just 14%, and that for qualified institutional buyers (QIB) was subscribed 1.03 times.

The IPO aims to raise ₹9,375 crore at the top of the price band of ₹72-76.

Zomato IPO Analysis

Is Zomato IPO’s price band expensive or fairly priced at Rs 72-76?

Many analysts suggest that one should look at metrics like market share and growth profile.

Calculated at Rs 76, Zomato IPO pricing is at 25X EV/sales. The food delivery firm’s global peers like DoorDash etc trade at about 9.6X EV/sales. For Indian QSRs the average is at about11.6X, according to calculations done by Motilal Oswal Financial Services.

An important reason why Zomato IPO is expensive is the scarcity premium – because the market is under-penetrated and growth rate is higher compared to others.

It is a great time for Zomato to go public as there is a rush of investors. 

Source: getbasis.co

The company, early in FY2021, was severely affected by the pandemic with revenues drying up due to lockdown. But, the fourth quarter was best for the company, it recorded the highest-ever gross orders. The vaccination drives have paved the way for a partial unlocking of the country. As time passes, the country would be looking for a complete unlocking, which will help Zomato’s business. With its huge network and brand image it is well-placed to take advantage of the growing demand for online food delivery. 

The Online Food Delivery Industry

The global online food delivery services market is expected to grow from $115.07 billion in 2020 to $126.91 billion in 2021 at a compound annual growth rate (CAGR) of 10.3%. The growth is due to the companies resuming their operations and adapting to the new normal while recovering from the COVID-19, which had earlier led to restrictions and measures involving social distancing, remote working, and the closure of commercial activities that resulted in challenges. The global online food delivery services market is expected to reach $192.16 billion in 2025 at a CAGR of 11%.

The  rise in smartphones has boosted online food delivery platforms. These users are the main online consumers for the Food industry and an increase in smartphone users points to an increase in online demand for food. The world F&B (food and beverage) e-commerce users reached 1.5 billion in 2019 and are expected to grow by 800 million, with an average of 25% year-on-year growth, by 2024. Zomato, has about 80 million monthly active users and targets to reach another 20 million over the next few years. Increase in smartphone users leads to internet penetration, which is  driving growth in the online food delivery industry.

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Want to know How Does Zomato Work & Makes Money? Check out this video: