Food delivery startup Zomato is set to go public this year and filed draft papers with market regulator SEBI for the same on Wednesday. The company, which is backed by Chinese billionaire Jack Ma-owned ANT Group and several other private equity firms, plans to raise Rs 8,250 crore through the initial share sale. Info Edge India, a major investor in Zomato, will be offering shares worth Rs 750 crore through this share sale.
The IPO of Zomato will be the biggest so far this year to hit the Indian stock exchanges, after the IPO of Indian Railway Finance Corp issue in January 2021.
The COVID-19 pandemic and the nationwide lockdown last year hit businesses hard, but food ordering companies like Zomato saw a strong rebound as the country began to reopen. This has led to the company raise more funds to strengthen and grow its business. The blockbuster IPO of US-based food delivery startup DoorDash in December 2020 has also lifted investor sentiment towards the sector.
In February 2021, Zomato raised $250 million through existing investors like PE firm Tiger Global, Fidelity Management, Kora Management and Bow Wave Capital. This fund-raising valued Zomato at around $5.4 billion.
Being a food ordering and delivery company, Zomato is asset light and doesn’t have substantial investments in fixed assets. Its key asset is the technology infrastructure, which helps customers search, discover restaurants and order food, read and write customer reviews, it enables restaurant partners to buy supplies and delivery partners can accept and service deliveries. This will be a major area of investment.
“We need to continue to invest in three core areas for the growth of our business which include a) customer and user acquisition, b) delivery infrastructure, and c) technology infrastructure. We have made these investments in the past, and we expect these to continue to be critical for the growth of our business in the future,” Zomato said.
The company said it will also use up to Rs 5,625 crore to tap organic as well as inorganic (acquisitions) growth opportunities. The net proceeds will be deployed over the next five financial years, according to the business needs, it added.
The company had acquired Uber Eats in January 2020 for Rs 2,485 crore. Earlier in September 2017, Zomato acquired rival Runnr (Carthero Technologies).
As of December 31, 2020 Zomato was present in 526 cities and had 350,174 active restaurant listing on its platform. In the last three financial years, it has seen a strong growth in revenues. In the year ended March 2020, for instance, Zomato’s total income doubled to Rs 2,743 crore from around Rs 1,400 crore. However, the company also reported an EBITDA (earnings before interest, taxes, depreciation and amortization) loss of over Rs 2,200 crore last year.
Zomato is a strong player in the food delivery space. But, it faces fierce competition from rival Swiggy. In the future, Zomato is likely to face even tougher competition from the deep pocketed e-commerce giant Amazon.
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In March this year, Amazon announced it was expanding Amazon Food across Bengaluru. While Amazon Food is still small compared to Zomato and Swiggy, analysts say it could disrupt the industry with its aggressive push. Amazon, for instance, was charging a take rate of 10 per cent on order value from restaurant partners, which was less than half of what Zomato and Swiggy charged, analysts at Motilal Oswal Financial Services had said last month. Also, Amazon Prime members get free delivery, which could further attract customers there.
Zomato also mentions in the draft prospectus that two criminal complaints are pending before the judicial magistrate, Mysuru, against the company, following complaints by the senior labour inspector in relation to alleged non-compliances with certain provisions of the Minimum Wages Act. The company is also involved in 25 consumer-related proceedings currently pending before various consumer courts and district consumer disputes redressal forum. It is also facing indirect tax-related proceedings amounting to Rs 96 crore.
Food delivery firms have also faced the wrath of restaurants in 2019 over the various discounts and promotions offered through their apps, which restaurants said undervalued their business.
