Here is the review of the most awaited IPO after LIC in the year 2021 which people are excited about. We guess that there is not a single internet user in India who has not seen craving ads of Zomato on Youtube and this makes them one of the most famous startups of India.
Gurugram based food tech giant Zomato is the first startup in India of billion-dollar valuation going for an IPO. The Zomato IPO is one of the largest IPO after the SBI cards IPO held in March 2020.
In this article, we will see the complete Zomato IPO review which you must read before investing in it and you will also learn how to analyze IPO in this market. Zomato IPO is the perfect example to learn and analyze the IPOs as it consists of many twists.
The Zomato IPO Review you need
Zomato IPO details
|ISSUE SIZE||₹ 8,250 Crores|
|FRESH ISSUE||₹ 7,500 Crores|
|OFFER FOR SALE||₹ 750 Crores|
Zomato has planned to raise ₹ 8,250 Crores at face value of ₹ 1 through the public issue which comprises the fresh issue of ₹ 7,500 Crores and OFS (Offer for sale) of ₹ 750 Crores. The issue price for Zomato IPO is not fixed yet, but people predict it between ₹ 40 to ₹ 60.
There is a simple difference between fresh issue and OFS i.e. the money raised through the fresh issue goes directly into the company’s bank account and is used to expand business or pay debt and make the business stronger but in OFS the money goes in the pockets of investor.
This is a positive sign as most of the money raised through Zomato’s IPO is going back to expand its business and pay debts.
Objective of Funding
Zomato is a billion-dollar company and they are raising funds like nothing in past years so why do they need more money?
No one knows the exact answer to this question as all these are internal decisions but we can say that Zomato has very big competitors so to sustain in such a competitive industry you must have cash.
|Funding organic and inorganic growth initiatives||₹ 5,625 Crores|
|General Corporate Purpose||[.]|
Here as an investor or shareholder what you should observe is that around 80% of the money raised through IPO is going back for the company’s growth and tomorrow if a company grows then the value of a share grows which benefits the shareholders.
Info edge the largest stakeholder in Zomato is selling all 1,244,029,200 equity shares and they will take 10% of a complete issue in their bank accounts.
Should you Invest in Zomato IPO?
Before investing in any IPO or company you must go into details about their history, business model, competitors, USPs, and many more.
Let’s pick one by one and analyze it deeply.
History – Who all invested in Zomato?
Info edge the initial investor in Zomato is having an 18.7% stake that they will sell through the IPO. After that, Uber, Alipay, Antfin, Internet fund, and SCI will be the top 5 largest stakeholders in Zomato.
But the point to worry about is that the founder (promoters) is having only 5.6%, which makes me nervous. This can be considered a red flag because while studying the fundamentals of a company promoter holding is one of the main points to focus on.
Let’s see the other sides of the Zomato business.
Business Model of Zomato
Zomato was launched as a food discovery platform but as they grew ahead they also started food delivery, dining out, B2B hyperpure, Zomato Pro, and Zomato gold services.
Zomato gives space to restaurants on their platform and takes some fees in return. Till 31 December 2020, it had 3.5 lakh active listings on its platform.
They also have special memberships like Zomato Pro and Gold which gives flat discounts on food delivery and some special dining out offerings. As of now, they have 1.4 million members and 25,320 restaurant partners in India for this particular business.
Hyperpure is their secret B2B business which we all don’t knew until we read DRHP. As Zomato has a lot of data they know the demand and supply game very well in the food industry and they made a business out of this in 2019 by supplying raw materials to partnered restaurants. Till December 2020 they supplied raw materials to 6000 partnered restaurants in India.
Lastly, their food delivery business in which Zomato acts as a middleman between users and restaurants. They earn commission from restaurants for every order and takes food delivery charges from the user.
|Company||Status||Start Year||Close Year|
|FoodPanda||Acquired by Ola in 2017||2012||2019|
|Scootsy||Acquired by Swiggy||2014||2020|
|UberEats||Acquired by Zomato||2017||2020|
As per the above table, many companies came and got shut down or acquired in this online food delivery business. Amazon is a silent player coming in as Amazon foods in the food delivery sector. Now the operational ones are only three which are Swiggy, Zomato, and Amazon (operational only for amazon employees).
These are some predictions made by industry experts about the growth of the online food delivery business in the future which is very positive.
AOV is a parameter on which you can judge this industry. AOV simply means average order value (₹ / order).
The most important point here is AOV which is decreasing as we go ahead but we can see an increase in the number of orders so we can ignore this parameter for the long term.
As more people going will use smartphones and the Internet in the future more are the chances that people will order food online.
Here we will see the comparison for the same in India and China.
Financials of Zomato
People like growth so let’s discuss some financials before investing in Zomato IPO. In financials, the main terms to focus on are profits, income, and expenses.
We can see in the above table that Zomato has huge expenses and as income increased by 3 times in FY2019 there expenses also increased 5 times which is not a good sign. As it got in control later in FY2020 but still expenses are more than double the income they are generating.
And the most important point they are continuously in losses from the start. But as they are growing so fast in terms of income and capturing a new user base these losses can be kept apart and we can hope it becomes a profitable future.
Can Zomato turn into a profitable business?
Unit economics is the easiest way to analyze such user-based startups. Unit economics is the broken down data for each parameter for every single order.
In 2020 AOV was 278 and due to covid, it got increased in 2021 up to 398. Increasing AOV is a very positive sign for such companies and Zomato is successful in doing this.
Out of this, they make real money through the commissions and delivery charges as mentioned in the above table we can see the total revenue for this increased by 30.7 in 9MFY21.
Now after payouts to deliveryman, giving fancy discounts to users, and adding other variable costs their total expenses are mentioned. By taking that into consideration when we approach for profits we see that in FY20 the company made a loss of ₹ 30 for every single order and in 9MFY21 a company made a profit of ₹ 22.9.
So we can say that Zomato is turning profitable but at the same time the data for the profits is in the times of covid and after post covid, if they are able to maintain such profitability then this will be the multi-bagger for shareholders in coming years.
Zomato vs Swiggy
Everyone wants to know and compare what’s going on between Swiggy and Zomato. Here is the table which will tell you exactly their revenues, expenses, losses in FY19 and FY20.
In recent time as per the revenue, Swiggy is the winner here but when you see the expenses that Swiggy makes for the same revenue as Zomato it’s huge and this will surely discomfort any investor in the world.
Due to this, the loss Swiggy is making is also big.
Final verdict for Zomato IPO
Here’s the time for the final Zomato IPO review conclusion.
We saw some red flags as well as some positive signs in this Zomato IPO review. But we need to answer some questions here before ending this article.
We have seen in the past that no food delivery company survived for a longer period of time as new companies came and they acquired some and others just shut. If in the future Amazon joins Zomato and Swiggy in the field then those 3 can’t enjoy good market growth at the same time as per their expenses made and one of those can collapse. So now will Zomato able to stay profitable in such market?
Amazon is also having the support of Jio to get data and make use of it to increase their customer base and cherry on the cake for Amazon is Amazon pay through which they can give attractive discounts and cashback to the user.
And customers love discounts and cashback we have seen this in the past.
Hyperpure can become the cherry on the cake for Zomato (link) as it can give the most accurate data regarding the interest of users buying intent and which will help them to advertise more efficiently. Can Zomato make proper use of Hyperpure?
Valuations for the Zomato are attractive as they have massive growth and also they are the premium first mover in the food delivery sector to get listed in markets which will give them a lot of fame in upcoming years.
Also we need to wait for HRP as it can give more details about the IPO and objective of Zomato investors. You can keep a track of Zomato IPO GMP here.
I hope you enjoyed reading the Zomato IPO review.
Signing off to write more IPO reviews.