Zomato is set to raise up to Rs 9,375 crore via IPO which will open on 14th July.
Apply for Zomato IPO through INDmoney App Here are the details:
Zomato’s rise to become a on online food delivery giant: Timeline
- Zomato’s IPO is indeed a very big moment for startups, as the listing would mark the first meaningful Internet listing in India. The company started operations in 2008, as an online food aggregator. It is the first Indian internet-based startup to go public.
- The company initially started as a Restaurant Discovery Platform. The main business model was advertising, as it provided visibility to other restaurants.
- Due to a heavy rise in competition, Zomato added other functionalities such as table booking and payments during dine-out. Finally in 2015, Zomato entered the food delivery business which acts as a restaurant aggregator, and this has emerged as a major growth driver for the company in the last few years (>80% of its FY20 revenues).
- Today, Zomato is one of the leading food aggregators in India with an FY20 GMV (Gross Merchandise Value) of US$1.5bn + and FY20 average monthly active users at ~42 million.
- Zomato offers a platform to search and discover restaurants, order food delivery, book a table, read and write customer-generated reviews and view and upload photos, and make payments while dining out at restaurants.
- Zomato is a one-stop procurement solution. In 2019, it acquired Hyperpure. As of Dec'20, Hyperpure was supplying 6,000 restaurants across six cities in India. It has helped Zomato increase engagement and thereby drive retention of restaurant on-board.
Food delivery business in India
- Food Services is a $65 billion market opportunity in India, according to estimates by Redseer. The market is expected to grow at 9% per annum and likely to reach $110 billion by 2025.
- Food Services in India is highly under-penetrated vis-à-vis other countries. While food consumption expenditure in India stands at $670 billion per annum, only c.10% of it is spent on restaurant food, while the rest is driven by home-cooked food. In contrast, 54% of food consumption in the US and 58% in China comes from restaurant food.
Zomato IPO review: Key metrics from financials
Before talking about the financials, let us see how big is Zomato:
- Zomato had a monthly active user (MAU) base of more than 4 crore, and monthly transacting users (MTU) of 1.07 crore in FY20.
- More than 80% of its revenues come from food delivery, and the balance is from B2B supplies, dine-out, etc.
- Zomato, as of March, 20 had more than 140,000 active delivery restaurants which catered to an annual delivery volume of 400 million orders.
- Zomato is the highest across the six biggest aggregator platforms around the world in terms of the number of orders per day per active delivery restaurant.
- Gross order value has more than doubled in FY20 to Rs 11,220 crore.
- 15 lakh Zomato Pro members and 25,443 Pro restaurant subscribers.
Zomato’s Listed Peers
- There are no listed peers of Zomato. Further, the company counts only Swiggy as its immediate competitor.
- The competitive landscape has changed, as a lot of other competitors such as FoodPanda, Tinyowl, UberEats etc got acquired, or went out of business. The table below shows the various competitors.
- Zomato's consolidated revenues have grown 5.6x over FY18-20, largely led by its delivery business. The revenue in FY18 was Rs 490 crore, and in FY20, it increased to Rs 2,740 crore.
- EBITDA loss reduced sharply in 9MFY21. EBITDA loss reduced from 88% of revenues in FY20 to 24% of revenues in 9MFY21. Zomato reported an EBITDA loss of Rs 2,305 crore in FY20, and in 9MFY21 the loss reported was Rs 314 crore.
- Zomato had a negative per-order contribution of Rs 30 in FY20, which turned into positive Rs 23 in 9MFY21. The reason has been an increase in Average Order Value (AOV), higher delivery charge to the customer, lower discounts, etc.
- In FY18, the delivery orders were 31 million which has increased over 13 times in FY20 to over 400 million. GOV has also grown more than 8 times from Rs 1,330 crore in FY18 to Rs 11,200 crore in FY20.
- The company has reported losses as of now, but the company has been successful in reducing the losses. The company has reported a loss of Rs 1,010 crore, Rs 2,386 crore, and Rs 680 crore in FY19, FY20, 9MFY21, respectively.
Zomato IPO: Impact due to Covid-19
- Zomato saw a sharp dip in its Gross Order value in Apr-Jun 20 period, due to Covid-19 induced lockdowns. This resulted in several restaurants temporarily suspending operations and there was also a hesitance amongst consumers to order food from restaurants.
- Gross Order Value on Zomato declined 60% QoQ from Rs 2,500 crore in Q4FY20 to Rs 100 in Q1FY21.
- GOV picked up sequentially and reached pre-Covid levels in Q3FY21. Nonetheless, Gross Order value in 9MFY21 stood at Rs 6,200 crore as compared to Rs11,200 crore for the full year FY20.
- Decline in no of orders was sharper albeit this was partly offset by a jump in Average Order Value (AOV). As consumers spent more time at home with families.
Zomato IPO details
Zomato IPO date: 14th July - 16th July 2021
Zomato IPO Price Band: Rs 72 - 76 per share
Zomato IPO Issue Size: Rs 9,375 crore
Issue Size: Fresh issuance of shares, aggregating up to Rs 9,000 crore, and an offer for sale of up to Rs 375 crore by existing shareholders.
Reservation: QIB 75%, Retail - 10%, NII 15%.
Employee Reservation: 65 lakh shares
Bid lot: 195 shares, and in multiples of 195 shares
Zomato IPO post listing: Outlook
- Zomato has raised a huge amount of equity capital over the years, most of which has gone towards funding operating losses and inorganic acquisitions. The marquee investors of Zomato include Sequoia Capital, Ant Group, Info Edge, Tiger Global, and Kora, among others.
- According to estimates by Jefferies, Zomato is likely to have a cash balance of Rs 14,000 crore post listing, which should be enough to continue bearing the losses for the next 7-10 years.
- The company would look towards funding organic growth initiatives including customer acquisition, ramping up of delivery infrastructure and tech capabilities over the next few years. The rest could be used to fund inorganic acquisitions as well.
- Zomato was able to reduce its losses sharply due to better unit economics in the previous year. Discounting offered to the customers was reduced too, from Rs 22 per order in FY20 to only Rs 7 per order in 9MFY21. Lower discounts, higher Average Order Volume, and lower costs have helped cut losses in the year.
Zomato IPO review: INDmoney Recommendation
The company has not turned in any profit so far. In fact, it is yet to report a positive EBITDA. Hence, comparison on the basis of P/E is not possible. Further, the company will not have any listed peers in the same space.
Over the years, the financials of the company have definitely seen an improvement. Zomato charged 75% more on delivery and earned 44% more commission in the previous fiscal. This was mainly due to a rise in orders, and fall in discounts.
The food or restaurant business in India only accounts for 10% of India's spend on food. Due to urbanization, increase in choice, and convenience, there is a massive growth opportunity for Zomato in the coming years.
At the higher end of the price band, Zomato IPO is roughly priced at a Mcap/ Sales of 28 times (based on FY21 data). This is about much higher than its global peers DoorDash and DeliveryHero. As the online delivery space remains under-penetrated, Zomato is expected to command a higher valuation in India (scarcity premium).
However, investors looking to invest should bear in mind that it is a loss-making company and the company has clearly indicated that it will continue to report losses over the medium-term.
Given the company’s market leadership status, strong topline growth, robust outlook, and positive sentiment due to marquee investors, investors who wish to take exposure to an under-penetrated online delivery industry could consider investing in this issue.
Apply for Zomato IPO through INDmoney App