Zomato IPO Looks Slightly Expensive, But Should You Subscribe?

By Angel Broking | Published on 13th July 2021 | 450

Zomato IPO Looks Slightly Expensive, But Should You Subscribe?

After so much hype about the upcoming offer, the online food delivery firm’s IPO will finally open on July 14, 2021. Earlier the IPO was scheduled for late FY22, but now it has been moved to July after analysing market interest.

Zomato IPO was one of the most anticipated IPOs in the current FY. It is also a first from a tech startup unicorn to list in Indian bourses. The shares will launch in the price band of Rs 72-76, which, according to market analysts, are on the higher side.

Let’s look at the crucial factors associated with the IPO offer.

If you are interested in investing in Zomato public IPO, please note the critical dates and details mentioned below.

  • The Zomato IPO will hit the market on July 14. The three days subscription window will remain open from July 14-16, 2021.
  • The price band for the shares is set at Rs 72-76 per share.
  • The enhanced issue size of Rs 9375 crore comprises primary issues worth Rs 9000 crore. Their existing investor, Info Edge, offloads Rs 375 crore in an offer for sale.
  • Zomato mentioned an indicative market capitalisation of Rs 60,000 crore, equal to the aggregated market cap of the quick service restaurants (QSRs) listed in the Indian bourses.
  • The estimated market capitalization also surpasses the value of all the hospitality chains listed in the country, including Indian Hotels that run Taj and Oberoi Hotels.
  • Investors will need to apply for a minimum lot size of 195 shares and increase in a multiple of 195 shares after that.
  • Investors can subscribe for a minimum of Rs 14,820 and a maximum of Rs 1,92,660 at the upper range of the price band.
  • The issue reserves three-fourth of the offered size for institutional investors. A 10 per cent of the remaining portion goes to retail investors, and non-institutional investors can apply for 15 per cent.
  • There is also a reservation of 65 lakh equities for interested employees.
  • The company proposes to utilise the proceeds from the new issues in financing organic and inorganic growth purposes and general corporate needs.
  • They have appointed Kotak Mahindra Capital Company, Morgan Stanley India Company, and Credit Suisse Securities (India) as their book running lead managers.

Company profile and financial performance

Zomato is a twelve-year-old online food delivery aggregator that dominates the market space and its competitor, Swiggy. According to RedSeer, they were a leading food delivery platform in the country regarding food sold in FY21. During the period, Zomato had 32.1 million average active users visiting their site monthly. They are currently operating in 525 cities in India, with 3,89,932 listed on their platform. Zomato was the most downloaded food and drink app in the last three fiscal years between FY19 and 21 in iOS App Store and Google Play combined per an App Annie estimate.

The company is currently incurring losses, reporting a consolidated loss of Rs 2,385 crore in the financial year ended in March 2020, which rose from Rs 1,010.2 crore the year before. However, during the same period, the company doubled its revenue from Rs 1312.58 crore to Rs 2604.7 crore.

In FY 21, Zomato’s losses stood at Rs 816.78 crore against a revenue of Rs 1,993.78 crore primarily due to the COVID-19 impact.

According to several market analysts, the Zomato IPO is expensively priced but may still be worth investing in. At the limit of Rs 76, the value is slightly on the upper end. But seeing investors’ enthusiasm, it is safe to say that the issue will make a strong debut in the market.

According to experts, Zomato’s business expansion plan looks solid as they are trying to strengthen its relationships with partner restaurants through backward integration. Also, while investing in IT companies, one must have a minimum of a five years horizon as these are not suitable for short-term gains. Most tech startups need a period of five to ten years to become profitable. In such a scenario, a 20 per cent CAGR looks attractive. A lot, however, depends on their business model and how scalable the company is in changing markets and competition. Zomato has a good understanding of the Indian market. If they can successfully leverage the conditions offered, they can increase revenue and growth for the business explanation they are planning. Recently, Zomato has purchased stakes in the online grocery marketplace, Grofers. There is also news that LIC is likely to invest in Zomato as well. If these factors work for the IPO bound startup, they can multiply their growth by 25 to 40 per cent in future.

Ending thoughts

Zomato’s public offer has created a lot of buzz among investors. The IPO issue looks slightly expensive in the price band of Rs 72-76, but it might also because the company attracted a 40 per cent scarcity premium. The online food delivery market is highly underrepresented, which gives Zomato a broader market to play.

Lastly, the Zomato IPO opens on July 14, 2021. Anchor investors’ bidding, if any, will begin a day before.

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