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MUMBAI/BENGALURU : Zomato Ltd’s much-awaited initial share sale could propel the 13-year-old food delivery firm into the ranks of India’s 80 most valuable companies.

At 76 per share, the upper end of the price band of 72-76 announced on Thursday by Zomato, the country’s largest food delivery platform will have a post-money valuation of 59,623 crore, giving it the 78th position among listed firms in India by market value. The share sale will open for subscription on 14 July.

Zomato’s valuation will be more than long-established and well-known names such as Hero MotoCorp Ltd, India’s biggest two-wheeler maker; drugmaker Aurobindo Pharma; Piramal Enterprises; Apollo Hospitals, Biocon Ltd and Bandhan Bank.

Top of the league
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Top of the league

Startups such as Zomato are benefiting from an explosive growth in users as people order in everything from food to groceries instead of dining out or visiting stores during the pandemic. Some of these pandemic-era habits are unlikely to change, experts say. The growth in smartphone users has also helped these consumer startups, several of which are set to go public in India over the next few months. “The management team met more than 300 institutional investors, across markets, including the US, Europe, Asia and India. Investors recognize Zomato is the largest food delivery player in India, the first of its kind, going public. They also recognize several macro themes such as a very large growing addressable market, headroom for growth and increased adoption of technology," said V. Jayasankar, senior executive director and head of equity capital markets, Kotak Investment Banking, which is managing the share sale.

The issue, which closes on 16 July, comprises an offer for sale of 375 crore by the company’s early investor—Info Edge—and a fresh issue worth 9,000 crore. The stock is likely to list on the exchanges on 27 July.

“Proceeds will be used for organic growth of the business, including customer acquisition, growing the delivery infrastructure and technology platform. The second is for inorganic initiatives, which will include minority share purchases or full buyouts. And the third bucket is general corporate purposes, where we will be investing up to 25% of the proceeds," said Akshant Goyal, chief financial officer, Zomato.

Post the IPO, Zomato will have about $2 billion, or roughly 15,000 crore in cash in the bank, he added.

While Zomato saw a 23.5% drop in revenue from operations to 1,993.7 crore in FY21 on account of lockdowns, the firm said its order volumes have recovered. “In Q4 of 2021, we have seen the highest gross order volume ever for our food delivery business. We are healthy from an economic standpoint, and that will reflect in results going forward," said Goyal.

Gaurav Gupta, co-founder, Zomato, said the company hasn’t seen an impact on order volumes in spite of restaurants opening up. “Our experience says once a consumer orders 2-3 times from a restaurant, it becomes a habit. And another thing is that for our tier-II, -III and -IV markets, we have been pleasantly surprised at the uptick. Consumers have accepted food delivery. And we believe there is still a large market of consumers who haven’t ordered from food delivery apps yet," Gupta said.

On average, 6.8 million customers ordered food every month on Zomato in FY21, an average monthly frequency of approximately three times, the company said in its prospectus. Zomato had 169,802 delivery partners and 148,384 restaurants on the platform in March 2021. It had 1.5 million Pro Members and 25,443 Pro Restaurant Partners as of 31 March.

“With >80% contribution to revenues, food delivery is the bedrock, a two-player market now, although more competition is possible. Covid impacted revenues but helped unit economics, and sustainable level is unclear. Clarity is needed on the usage of ~45% proceeds for M&A, nutraceutical foray, etc. The technical factors may drive investor interest, which may have broader implications," Jefferies India said in a note to its clients.

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