Established merely 13 years ago and boasting of a market capitalization of over 1 lakh crore today, the food delivery startup Zomato has recently been flashing in the news due to its IPO. The much talked about Zomato IPO saw a frenzy of investments and amidst much hype was listed on the NSE and BSE.
So what is driving the hype? Before we dive into the particulars of the Zomato IPO, let’s briefly look at what an IPO actually is.
What is an IPO?
An Initial Public Offering or IPO is the premiere of a company’s stocks to the retail and the institutional investors. It is the preferred route for a privately traded company to raise funds, go public and have it’s shares traded on various public exchanges.
To launch its IPO, a company has to meet various requirements laid down by the Securities Exchange Board of India (SEBI). The process includes appointing an underwriter, applying and going through the verification process by the SEBI, applying to stock exchanges, pricing the shares correctly and finally allocating the shares.
While there are no written-down rules, most companies take the plunge when their valuation reaches the $1 billion mark or a startup reaches “Unicorn” status. Case in point – Zomato, which had already acquired Unicorn status before going public.
A company may choose to offer an IPO for various reasons. However, two key reasons are to raise funds and generate liquidity. An IPO opens the company to receive funds provided by investors in return for a share in the company. These funds in turn help the company to expand operations and increase credibility. Thus, an IPO helps a company multiply and broaden its business horizons.
Now, let’s look at the impact of this IPO on Zomato and its business.
The Zomato IPO in numbers
Zomato’s IPO was open from the 14th to the 16th of July with a price range of ₹72-76 per share. The offer size of the IPO was ₹9,375 crores which included an offer for sale by existing investor Info Edge (Naukri.com). Interestingly the red herring prospectus, an initial document submitted to SEBI before the public offering, showed this offer for sale at ₹750 crores which was later slashed down to half.
The valuation of this food delivery mammoth before the IPO was close to ₹ 60,000 crores. This equaled the value of Quick-Serving Restaurants (QSRs) like Domino’s and exceeded that of hospitality giants such as the iconic Taj Group of Hotels and Oberoi Hotels. This was also higher than the British food delivery company Deliveroo and American food ordering company Grubhub.
In terms of revenue and profits, for the year ended March 2019, Zomato reported a loss of ₹1,010.2 crores which doubled to ₹2,385.6 crores in the following fiscal year. On the brighter side, its revenue almost doubled to ₹2,604.7 crores from ₹1,312.5 crores during the same period.
So these were the past figures of Zomato, let’s glance through the current scenario and status of the IPO.
Zomato and its IPO in Current News
By the last day, over 2,751 crores shares were bid for compared to 71.92 crores shares on offer amounting to an over-subscription of over 40 times. That is a phenomenal response especially in light of the company’s growing losses and inability to generate positive earnings.
As of Tuesday the 27th of July, Zomato’s share price touched an all-time high of ₹147.8, nearly double from the IPO price of ₹76. A UBS report said, “As one of the two leading players in the rapidly growing food delivery market in India, we expect Zomato to deliver over 40% revenue CAGR making it one of the fastest-growing internet companies in the region.”
Commenting on the IPO, Info Edge founder Mr Sanjeev Bikhchandani said, “Zomato’s stellar debut on Dalal Street has busted the myth that companies get better valuations on listing overseas”. He also expressed his appreciation towards millennials for such “unprecedented” willingness to invest in a company with a strong business model though it may yet be making losses.
The IPO can be termed as just the entry phase of Zomato into the world of the public markets. It has yet to see the ups and downs that this ride entails. We are sure that it is going to be an interesting one to watch as it would lay the pathway for more startup unicorns towards the stock market.