BackZomato preps an IPO menu with fresh funds
Latest funding round closes firm’s valuation gap with rival SwiggyAnalysts say the losses wouldn’t impact Zomato’s IPO aspirations
PremiumOnline food ordering firm Zomato is gearing up to go public by mid-2021 in what could mark a turning point for Indian unicorns even as they wait to turn profitable.
If the Gurugram-based startup pulls off the feat, it will join the likes of MakeMyTrip, which listed on NASDAQ in 2010, and Zomato’s single-largest shareholder Info Edge India Ltd, which was listed on BSE in 2006.
Zomato founder and CEO Deepinder Goyal told employees about the initial public offering (IPO) on Thursday—the day Info Edge informed the exchanges that Zomato has raised $103 million from New York-based Tiger Global Management as a part of its ongoing Series J financing.
In an email reviewed by Mint, Goyal also told employees that the company has around $250 million in the bank, which will be used for potential mergers and acquisitions and to fight price competition in the market.
The development comes a week after Zomato raised $62 million from MacRitchie Investments, a unit of Singapore’s state investment arm Temasek Holdings; and disclosed a $150 million commitment from China’s ANT Financial, of which it has received $50 million.
“Our finance and legal teams are working hard to take us to IPO sometime in the first half of next year. The value of our business is going up dramatically, all thanks to the hard work and commitment of our team," Goyal said in his email.
With the latest funding, Zomato’s valuation is estimated to have inched up from $3.25 billion to $3.3 billion, closing the gap with rival Swiggy, which was last valued at $3.6 billion. Swiggy raised $156 million earlier this year from Naspers and others.
Currently, Zomato is looking to close the latest funding round, which will increase its bank balance to $600 million, Goyal said.
“The best part is that our burn rate is very low, and our market share is accelerating in all regions... We have no immediate plans on how to spend this money. We are treating this cash as a ‘war-chest’ for future M&A, and fighting off any mischief or price wars from our competition in various areas of our business," added Goyal in his mail.
As Zomato looks to go public, losses for the firm haven’t seen any significant improvement. Although Zomato doubled its revenue to $394 million in 2019-20, losses also marginally increased to $293 million from $277 million in 2018-19.
Analysts said the losses wouldn’t impact Zomato’s IPO aspirations.
“Companies such as Facebook and Amazon were loss-making at the time they went public. So losses might not hold back Indian tech unicorns from an IPO. If a company isn’t profit-making, it will have to go through a book-building process where a stock price is decided within a range based on bids received," said Santosh N., managing partner, D and P Advisory Services LLP, a management consultant.
According to Santosh, Zomato going public will generate bullish sentiment among late-stage investors who have invested in Indian unicorns, startups which have only seen investors exit through lateral stake-sale to other venture capitalists.
Local investors also seem to have failed to understand loss-making technology companies, forcing startups to look at exchanges overseas to go public. With tech companies performing at an all-time high on NASDAQ, the market will likely see an uptick in global technology IPOs.
“When a company is private, there can be mispricing with new investors boosting valuations. True value gets discovered during the listing process of the company and what market investors are ready to pay," said Santosh.
In its latest report, published in August, Zomato estimated that business for the food delivery industry will come back to pre-covid levels in the next 2-3 months, with 70% of restaurants on its platform delivering food at present.
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