Only bids for 195 equity shares or more will be accepted and part of the proceeds will be invested in delivery and infrastructure technology, the company said.
Zomato is set to raise Rs 9,375 crore ($1.25 billion) from its initial public offering (IPO), which will remain open between July 14 to July 16, the company stated in a press release.
Zomato was founded in 2008 as a restaurant discovery website and is now one of the main players in the food delivery market along with Swiggy and the new entrant Amazon. The company earns its revenue primarily through food deliveries, it charges restaurants a commission for deliveries and collects delivery fees from customers. The company also operates Hyperpure, which supplies ingredients to its restaurant partners.
Zomato has seen a sharp surge in its popularity in recent months as lockdowns have eased across the country. According to RedSeer, Zomato is the category leader in the food delivery space in India. The company had 169,802 active delivery partners and 148,384 active food delivery restaurants during the month of March 2021, Zomato’s red herring prospect (RHP) stated. Furthermore, India’s food services market is expected to grow to US$110 billion in 2025, the prospect stated. The IPO makes Zomato the first online food aggregator from India to go public.
“On an average, 6.8 million customers ordered food every month on our platform in India in Fiscal 2021 with an average monthly frequency of approximately 3.0 times. In Fiscal 2021, 99.3% of our food delivery Orders came through Zomato’s mobile application.” – Zomato RHP
The announcement regarding the IPO comes a few days after the National Restaurant Association of India (NRAI) asked the Competition Commission of India (CCI) to investigate “inherently anti-competitive practices” of online food-delivery platforms Zomato and Swiggy. The issues raised by NRAI include bundling of services, data masking, exorbitant commissions, deep discounting, price parity agreements, violation of platform neutrality, lack of transparency, vertical integration, and exclusivity of listed restaurants.
Details of the IPO
Out of the Rs 9,375 crore Zomato is set to raise, Rs 9000 crore will be a fresh issue and Rs 375 crore will be an offer for sale by existing shareholder Info Edge. The company is set to issue 1,30,20,83,333 equity shares, out of which 6,500,000 shares will be reserved for purchase by eligible employees.
The price band is fixed at Rs 72 to Rs 76 per equity share and bids for shares can be made for a minimum of 195 equity shares and in multiples of 195 equity shares thereafter, the press release stated.
Notably, Zomato has increased its fresh offer size to Rs 9,000 crore, up from the Rs 7500 crores it stated in the draft red herring prospectus (DRHP) filed with SEBI in April, due to increased demand and positive response from investors, Zomato Co-Founder Gaurav Gupta said in an interview with CNBCTV18. Meanwhile, InfoEdge, one of Zomato’s earliest and largest shareholders, has reduced its offer for sale from Rs 750 to Rs 375 crores.
InfoEdge, Uber BV, Alipay Singapore Holding, Antfin Singapore Holding, Internet Fund VI Pte Ltd, SCI Growth Investments II, and Deepinder Goyal (5.55 percent) are some of the largest shareholders in the company.
Kotak Mahindra, Morgan Stanley, Credit Suisse, Bank of America, and Citigroup will manage the IPO. These five have handled 15 issues in the past three financial years, out of which 5 issues closed below the issue price on the listing date, Zomato has warned.
Zomato’s stock is likely to be listed on NSE and BSE on July 27.
According to Zomato’s RHP, the consolidated loss for the financial year 2021 stood at Rs 816.43 crore on revenue of Rs 1,993.78 crore. In the financial year ended March 2020, the company’s consolidated loss stood at Rs 2,385.6 crore, widening from the loss of Rs 1,010.2 crore in 2019. However, revenue nearly doubled to Rs 2,604.7 crore from Rs 1,312.58 crore in the same period.
In response to a question by CNBC on when the company might turn profitable, Gaurav Gupta did not offer any specific timeline and said that the company will continue to run and build the business as they have done in the last 2-3 years.
“We have a history of net losses and we anticipate increased expenses in the future,” the company stated as one of the risks in the RHP.
How will the proceeds be used
40 percent of the proposed deployment will go into funding organic growth initiatives, including customer and user acquisition. This will include acquisition and retention costs (including discounts) and marketing and branding (such as general advertising, marketing, and branding), the DRHP stated. The proceeds will also be invested in delivery and infrastructure technology. Deployments of funds will depend on multiple factors including timing, nature, size, and number of acquisitions undertaken, as well as general factors affecting results of operations, financial condition, and access to capital, the DRHP added.
Will the proposed amendments to e-commerce rules hurt Zomato?
The government on June 21 proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. The proposed rules cover food delivery platforms like Zomato and Swiggy, and contain provisions that will impact the way Zomato currently works. The rules require platforms to treat all sellers equally, require platforms to explain the ranking process, prevent the promotion of certain groups of sellers, ban flash sales, curb private labels, and disallows platforms from using data to benefit their own products or a particular group of sellers. Interestingly, Zomato’s RHP does not discuss these proposed amendments, although it discusses the E-Commerce Rules as they are.
Additional details from Zomato RHP
The risks highlighted by the company (quoted verbatim):
- We may not be able to sustain our historical growth rates, and our historical performance may not be indicative of our future growth or financial results;
- We have a history of net losses and we anticipate increased expenses in the future;
- The COVID-19 pandemic, or a similar public health threat, has had and could impact our business, cash flows,
financial condition and results of operations;
- If we fail to retain our existing restaurant partners, customers or delivery partners or fail to add new restaurant partners, delivery partners or customers to our portfolio in a cost-effective manner, our revenue may decrease and our business may be adversely affected
- If we are unable to continue to provide services to our restaurant partners or to implement our strategy to enable more restaurants with more solutions, our business, cash flows and prospects may be materially and adversely affected
- Growth of our business will depend upon the strength of our brand, and any failure to maintain, protect and enhance our brand could limit our ability to retain or expand our customer base, which could materially and adversely affect our business, cash flows, financial condition and results of operations;
- Unfavourable media coverage could harm our business, financial condition, cash flows and results of operations;
- We face intense competition in food delivery and other businesses and if we are unable to compete effectively, our
business, financial condition, cash flows and results of operations could be adversely affected;
- If we do not continue to innovate and further develop our platform or our platform developments do not perform, or we are not able to keep pace with technological developments, we may not remain competitive and our business and results of operations could suffer; and
- Failure to generate and maintain sufficient high quality customer generated content could negatively impact our business.
The strengths highlighted by the company:
- Strong network effects driven by unique content and transaction flywheels
- Widespread and efficient on-demand hyperlocal delivery network
- Technology and product-first approach to business
- A strong consumer brand recognized across the length and breadth of India
The long term growth strategy highlighted by the company:
- Continuous focus on unit economics and growth, at the same time
- Expand and strengthen our community across our three businesses – food delivery, dining-out, and Hyperpure
- Invest in new products and technologies
- Continue to build a strong consumer brand recognised across India
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