All you need to know about Zomato’s IPO, future plans and its rivalry with Swiggy.
The Mega IPO
Unless you are from the 1800s, you would have definitely heard about Zomato. It is an Indian food delivery startup backed by Jack Ma’s Ant Group. The recent news is that the company has filed an initial prospectus with Sebi to launch an initial public offering (IPO).
Zomato’s IPO could be the biggest IPO of 2021 so far. According to data compiled by Bloomberg, the startup’s share sale would be India’s biggest this year, at $1.1 billion, surpassing Indian Railway Finance Corp.’s $649 million offering in January.
Here are the details of the IPO:
- The company’s public share sale will consist of a fresh issue of shares worth up to ₹7,500 crore.
- The firm’s major shareholder Info Edge India Ltd will sell shares worth ₹750 crore via offer for sale (OFS) in the IPO.
- The startup is planning to raise a whopping ₹8,250 crore via the IPO.
- Zomato may consider a private placement of ₹1,500 crore before the IPO and this may reduce the size of the fresh issue it has proposed until now.
- Kotak Investment Banking, Morgan Stanley, Credit Suisse Group AG, BofA Securities and Citigroup are arranging the share sale.
As a company, Zomato seems to be in a good place right now. A couple of months ago, it raised $250 million in its pre-IPO primary fundraising at a whopping valuation of $5.4 billion. This fundraising came after it raised $660 million in December 2020 at a valuation of $3.9 billion.
But why is this relevant? Because Zomato struggled to raise money for the most of 2020. A TechCrunch article in 2020 said, quoting sources, Zomato met with several investors for its new funding round, but most talks have not materialized. In late August, Ant Group said that it will not be able to invest in Zomato due to a regulatory change in India. However, the current fundraising spree indicates strong investor confidence in Zomato’s business and its capability to come back stronger after COVID-19.
The Never-Ending Rivalry
According to Bernstein analysts, Zomato has around 50% of the Indian market share and is the current leader among other online food ordering apps such as Swiggy. However, Swiggy is giving tough competition to Zomato. But what are they fighting for? The answer is India’s $11 billion online food delivery space.
The competition is intense, but the growth is expected to be massive as well. In a report by Bernstein last year, online food delivery is anticipated to grow strongly to reach $22 billion by 2025 growing at 40% CAGR. The report also said that online penetration is said to rise to ~10% in 2022 and ~20% by 2025.
At this moment, the IPO may give a boost to Zomato against Swiggy as the company is planning to use 75% of the gross proceeds from its IPO, which is ₹5,625 crore, to finance organic and inorganic growth initiatives for five years. The organic initiatives include customer and user acquisition, investing in its delivery infrastructure and building its technology infrastructure. Among its inorganic initiatives, Zomato will continue to look for and analyse opportunities for acquisitions and strategic initiatives.
Now, the only question that remains is that, what kind of response will Zomato’s IPO receive, and will it be overwhelmingly positive or highly disappointing?