Zomato IPO – Can you afford not to invest in this IPO?

Zomato IPO
IPO
12/07/2021

If you have ordered food online at any point of time in India, it is very unlikely that you have not heard of Zomato, or used it. Like most of ecommerce and digital players, Zomato has a long gestation so it is still making losses. But that is hardly the game when you invest in the Zomato IPO. Zomato is approaching the IPO market in India to raise Rs.9,375 crore from the retail and institutional investors. Out of this amount, Rs.9,000 crore will be the fresh issue portion and Rs.375 crore will be an exit route for Info Edge. 

Key terms of the IPO issue of Zomato

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

14-Jul-2021

Face value of share

Rs.1 per share

Issue Closes on

16-Jul-2021

IPO Price Band

Rs.72 - Rs.76

Basis of Allotment date

22-Jul-2021

Market Lot

195 shares

Refund Initiation date

23-Jul-2021

Retail Investment limit

13 Lots (2,535 shares)

Credit to Demat

26-Jul-2021

Retail limit - Value

Rs.192,660

IPO Listing date

27-Jul-2021

Fresh Issue Size

Rs.9,000 crore

Pre issue promoter stake

N.A.

Offer for Sale Size

Rs.375 crore

Post issue promoters

N.A.

Total IPO Size

Rs.9,375 crore

Indicative valuation

Rs.59,625 crore

Listing on

BSE

HNI Quota

15%

QIB Quota

75%

Retail Quota

10%

Data Source: IPO Filings

The fresh funds worth Rs.9,000 crore will be allocated for the following purposes.

  • Funding organic growth by expanding its scale and spread of operations to reach out to more digital customers across India.
  • Funding inorganic growth via acquisitions and takeovers of smaller and niche players to catalyse growth in its core segment.

Also Check: Things to know about Zomato IPO

A quick look at the Zomato Financials

Here is a quick look at the financials of Zomato, and we have only captured key financial parameters of relevance to the Zomato IPO for the last 3 fiscal years.

Financial Parameter

Fiscal 2020-21

Fiscal 2019-20

Fiscal 2018-19

Net Worth

Rs.8,096 cr

Rs.2083 cr

Rs.2,597 cr

Revenues

Rs.1,994 cr

Rs.2,605 cr

Rs.1,313 cr

EBITDA

Rs.(467) cr

Rs.(2,305) cr

Rs.(2,244) cr

Net Loss

Rs.(817) cr

Rs.(2,386) cr

Rs.(1,011) cr

 

Investment Perspective for Zomato IPO

That is the bottom line. Should you invest in the Zomato IPO or should you give it a pass. At the outset, this is not a company that you can measure on traditional parameters. This is a business that requires a lot of front-ending of costs and back-ending of revenue related benefits. Here are some parameters that would help you take a decision.

  1. The food delivery business is largely based on the network effect. More options, means more customers and more customers means more gross order value (GOV). When there are more customers, more restaurants sign on and that is how the network effect forms a virtuous cycle. Zomato has surely perfected this virtuous cycle.
  2. While this is an industry that is very dynamic, the network outreach, brand of Zomato and the size of the Indian digital market mean that there are no immediate top line threats for the company and that is the good news.
  3. The unit economics of Zomato has been constantly improving as its promotion expenses have come down from 88% of total income in 2019 to 25% of total income in 2021. As a result, the contribution profit as a share of GOV has been positive in each of the four quarters of FY21.

These are the points you must keep in mind when you take a final call on investing in the Zomato IPO.

 

Watch a detailed video on Zomato IPO:

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Godrej Properties is India’s largest realty player

Godrej Properties
12/07/2021

You may believe that the real estate market is dull but Godrej Properties begs to differ. Consider these numbers. Over the next couple of years, Godrej Properties plans to invest close to $1 billion or Rs.7,500 crore to acquire and develop new projects. Secondly, Godrej has confirmed that in the last fiscal year, it sold 9,345 homes which is an average of 25 homes sold per day. To bankroll its grand plans, Godrej Properties has also raised a whopping Rs.3,750 crore through placement to Qualified Institutional Buyers (QIBs).

What has all this done to the top line numbers of Godrej Properties. For fiscal year 2020-21, Godrej Properties emerged as the largest real estate developer in the Indian markets. Godrej Properties sales bookings for the year were 14% higher at Rs.6,725 crore. This virtually puts the largest real player in the real estate space, Macrotech Developers (formerly Lodha Developers), to the second place. During the fiscal 2020-21, Macrotech reported total sales of Rs.6,000 crore, more than 10% lower than Godrej Properties.

It is said that the proof of the pudding lies in its eating and the proof of a stock’s attractiveness lies in its stock price. Since Sep-20, the stock of Godrej Properties has almost doubled from Rs.819 to Rs.1,517. This is largely on the back of the emergence of Godrej in the top league among real estate developers. More than anything, the markets appear to be excited about the billion dollar investment that the company is infusing into expanding its business to the next trajectory. 
 

Next Article

Crude Oil at $75/bbl – Here comes inflation

Crude Oil
12/07/2021

Brent Crude touched $75/bbl after a long gap. The last time Brent Crude was above $75 was back in 2018, when oil peaked around $79/bbl. Of course, crude oil is still a long way off the $100/bbl mark which it scaled prior to 2014. What exactly is driving oil higher? For one, the OPEC talks for increasing oil supply has failed. OPEC is a cartel of oil players led by Saudi Arabia, which controls over 30% of the global oil supply. OPEC had cut oil supply last year to boost oil prices and that has been one of the reasons for the rise in oil prices.

But low supply has a cost to the oil producers too. They are not able to profit fully from the higher prices due to supply constraints. As a result, a clutch of OPEC members including United Arab Emirates have been insisting on a sharp increase in supply. In fact, OPEC was planning to add nearly 7 million barrels per day (bpd) from Aug-21 but that is the crux of the dispute. While UAE and other countries are keen to add supply, big guns like Saudi Arabia want to persist with supply cuts for longer.

This dispute has meant that OPEC supply may not fully return in August. That is not great news for India because every $10 increase in crude oil prices leads to 0.5% increase in inflation. With India relying on imports for 80-85% of its oil needs, this vulnerability is here to stay. That explains petrol and diesel at above Rs.100/litre. As long as the OPEC dispute is on, India must prepare for higher levels of inflation.

Read: Sectors dependent on crude Oil

Next Article

SFBs get a boost as they can absorb the holding company

small finance bank
12/07/2021

In the last few days, small finance banks and their parent companies have shown a sharp rally. What exactly has changed? Both Equitas Small Finance Bank (SFB) and Ujjivan Small Finance Bank (SFB) propose to apply for amalgamation of their parent with the SFB. While Ujjivan Financial is the holding company of Ujjivan SFB; Equitas Holdings is the holding company for Equitas SFB. This was after the RBI permitted SFBs to merge their holding companies into themselves. How this announcement relevant.

It assumes significance as both Equitas SFB and Ujjivan SFB are about to complete five years of operations. Under the RBI regulations, on completion of 5 years the holding company must dilute its stake in the SFB to below 40%. Both the holding companies; Ujjivan and Equitas, hold nearly 82% in the SFB arms. Reducing this stake to below 40% would entail a massive surge in free float depressing prices. The new RBI rule will allow the SFB holding companies to avoid dilution by merging the holding company into the SFB. This will ensure that the valuation of the group improves.

In the last few months, this mandatory holding company dilution was the reason for stock prices being tepid. With RBI allowing SFB holding companies to amalgamate with the SFB, this dilution issue is automatically addressed. But there is a bigger takeaway. Most holding companies in India are subjected to a holding company discount and this was depressing valuations. With the new rule, that discount should go away, allowing more value based pricing for SFBs. That is what is getting markets excited about Ujjivan and Equitas.
 

Next Article

Inflation poses a challenge at above 6% in June

Inflation
13/07/2021

The good news was that inflation at 6.26% for Jun-21 was way below the consensus estimate of 6.9%. The bad news was that inflation was just marginally below the May-21 inflation level of 6.3% and well above the RBI tolerance level of 6%. Remember, the 6% is the outer tolerance limit of RBI with respect to inflation and its median inflation target for the Indian economy is 4%. So, the current inflation is still way higher.

Let us turn to the components of inflation. Core inflation (which excludes food and fuel) was slightly down from 6.55% in May to 6.16% in June. However, food inflation spiked from 5.01% to 5.15% in June on the back of higher oil, fat and egg inflation. But the bigger concern for the RBI would be the sharp spike in fuel inflation and transport inflation. Fuel inflation spiked from 11.6% in May-21 to 12.68% in Jun-21 while transport inflation also came in sharply higher at 11.56%. Food inflation was much sharper in rural India.

The steep levels of inflation can be attributed to higher crude prices. Typically, a $10 per barrel increase in crude oil prices lead to a 0.5% rise in inflation in India. Additionally, higher fuel prices and higher transport inflation have strong externalities in the sense that they seep into almost all goods and services. For the RBI, the bigger challenge is the pressure on real rates of interest and the pressure to hike interest rates to compensate investors. We will await the RBI monetary policy in August for greater clarity.
 

Next Article

What is so hot about fertilizer stocks?

Fertilizer sector - stocks to watch
13/07/2021

In the din and euphoria over steel and internet stocks, investors appear to have forgotten a silent multi-bagger in the last 8-9 months. Of course, we are referring to fertilizers. The robust Kharif output last year gave an impetus to fertilizer stocks. Since Sep-20 most fertilizer stocks have at least doubled. Then there are the likes of Chambal Fertilizers that is up 3 times and Deepak Fertilizers up nearly 4 times in this period. What exactly has been the trigger for this fertilizer stock rally?

During the last few months, the government has made a series of announcements, hiking the subsidy on fertilizers to reduce the burden on farmers. Yes, fertilizer input prices have gone up and most fertilizer companies have had to raise prices. In June, the government hiked subsidy on key fertilizers by 140%. For example, the government will now offer a subsidy of Rs.1,200 per bag of NPK (Nitrogen, Phosphatic, Potassic) fertilizers as compared to Rs.500 offered so far. When you combine with the robust MSP offered by the government to farmers for Kharif procurement, it puts fertilizer stocks in a sweet spot.

But, what is more interesting is that valuations of fertilizer stocks are still attractive. For example, Chambal Fertilizers is available at 9.2X P/E while Deepak Fertilizers is available at about 20X P/E. Then there are the PSU fertilizer plays like NFL and GSFC, that are still available at just about 10X P/E and GNFC at 8X P/E. These valuations are after the sharp rally. With the government willing to stretch its fertilizer subsidy bill higher, it surely spells good times for farmers and for fertilizer stocks.