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

Zomato IPO

IPO
Last Updated: 2021-07-13T11:26:20+05:30

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.

 

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