Prizilla Shinjini 
Zomato is opening IPO !! The offer size will likely be as much as ₹9,375 crores. This is making it the second-biggest IPO since SBI Cards and Payment Services’ ₹10,340 crore offer last year in March. The issue comprises an offer for the sale of ₹375 crores by the company’s early investor. Info Edge and a fresh issue worth ₹9,000 crores. The stocks are to being listed on the exchanges on 27 July.
This economy is being as a watershed moment for India’s venture capital and start-up ecosystem. Zomato’s Rs 9,375 crore initial public offer (IPO) will open for subscription on July 14. And is likely to draw a bumper response. The much-awaited IPO of online food delivery and restaurant discovery platform. Zomato is knocking on the doors for delivery of its initial public offering (IPO). On Dalal Street, as it is set to open for subscription.
Brief details about the Zomato IPO
Zomato, which has a presence in 525 cities in India. An average of 6.8 million customers ordering food every month. Now, it is being valued at $8 billion or just under Rs 60,000 crore. At the upper end of the price band of Rs 72-76. Additionally, while most analysts have already raised concerns on the IPO’s premium pricing that may leave little on the investor’s list.
Zomato is not the only player across the globe that is still Ebitda suggests a report from Jefferies. Hence, while Swiggy is Ebitda negative besides Zomato. San Francisco headquartered by Uber Eats and Germany-based Delivery Hero is also sailing in the same boat consequently. The hunger for such tech-driven IPO is very high which will ensure digestion of such IPOs.
Such companies will not be valued as per the traditional valuation methods. In spite of such companies posting losses again, they are valued even more than some traditional giants. The ability to reach the doorstep of any customer is a great strength that may open the doors of new business avenues.
Consequently, such disruptive businesses are a double-edged sword. As the entry of any big pocketed player may pose a serious threat to the business. For a longer-term view, we need to constantly track the company’s performance, acquisitions, expansions. Whether the company is heading on the path of profitability on a continuous basis.
Other food delivery companies in this chain
Simply put earnings before interest and taxes (EBIT) in addition, is an indicator of a company’s profitability. And this is calculated as revenue minus expenses excluding tax and interest. Additionally, EBIT is also referring to as operating earnings, operating profit, and profit before interest and taxes. There are a lot of questions in the minds of investors with respect to medium-term growth. Profitability & cash usage, the fear of missing out (FOMO) factor should keep the excitement level high, analysts say.
With $1.5-2 billion annual GMVs, Indian aggregators are fairly small versus global peers. Average order values (AOVs) are fairly low in developing countries where Zomato, Swiggy, food (Brazil), Meituan (China) and Delivery Hero have a presence, the report suggests.
According to an ET report, this round is expecting to be an extension of Swiggy’s $800 million round, which witnessed participation from marquee investors Falcon Edge, Amansa Capital, Think Investments, Carmignac and Goldman Sachs. According to media reports published earlier in April, SoftBank was looking to invest about $450 million in Swiggy at a valuation of $5 billion. The Japanese conglomerate had sought CCI’s approval last month before making the transactions.
The statistics behind
That said, there is ample scope to grow going ahead. Food Services is a $65 billion market opportunity in India, as per Redseer, growing at 9 per cent per annum and likely to reach $110 billion by 2025. Within the food services market of $65 billion, online delivery forms only a small subset with market size of $4.2 billion (6-7 per cent). Hence, there is also an opportunity for online delivery to gain a share within the growing food services pie. Only 9 per cent of Internet users in India are currently ordering food online, according to estimates, versus 36 per cent in the US and 50 per cent in China.
Food Services in India is highly under penetrating in other countries. This is evident in the fact that while food consumption expenditure in India is standing at $670 billion per annum. Only around 10 per cent of it is spending on restaurant food, while the rest is driving by home-cooked food. In contrast, 54 per cent of food consumption spends in the US and 58 per cent in China comes from restaurant food.
The company’s consolidated loss narrowed to ₹816 crores in FY21 as compared to a loss of ₹2,385 crores in the previous year. The company says that its losses are being expected to continue given ‘significant investments towards growing its business.’ Zomato’s Red Herring Prospectus (RHP) hints at a continued recovery across key operational metrics in March 2021, analysts observed.
Based on FY21 numbers
While the IPO seems expensive based on FY21 numbers moreover, Jyoti Roy, DVP, Equity Strategist of Angel Broking believes that FY21 is an aberration as businesses are impacting significantly due to the first Covid wave and the ensuing lockdowns.
However, given the strong growth prospects, high barriers to entry and duopoly nature of the food delivery business, in India he believes that Zomato will command a premium to global peers (like Meituan, Doordash, Delivery Hero) and therefore the brokerage is positive on the future growth prospects of the company.
Percentage Analysis
- We are positive on the Foodtech market and forecast a revenue potential of $6.5 billion by FY30F and assign a market value of $18.5 billion to the food delivery market. This assumes
- 20% CAGR in monthly transacting users, at around 87 million,
- Ordering frequency to improve to around 5.5 and
- Average order value CAGR of close to 2%.
These should result in a GMV of around $33 billion by FY30F, assuming a 20% stable take rate, implying a revenue pool of $6.5 billion. We assign a 7x sales multiple and a discounting factor of 14% to arrive at a market value of $18.5 billion.
To invest in Zomoto’s IPO click the link https://zerodha.com/ipo/285107/zomato
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