The segment was subscribed 2.9 times at the end of Day-1 of IPO
The Zomato retail subscription is a bit pale compared to the Burger King India share sale in December
Retail investors snapped up shares of Zomato Ltd on the first day of its much-awaited initial public offering, maintaining their enthusiasm for the primary market manifest in every IPO of the year.
Within minutes of opening, the retail segment of the Zomato IPO was fully subscribed, and by the end of the day, small investors had bid for 2.85 times the number of shares on offer.
At the upper end of the ₹72-76 price band, the IPO drew retail bids worth roughly ₹2,655 crore. Retail investors were also enthused by the previous day’s ₹4,196 crore anchor investment, where marquee investors were allotted 552.17 million shares at ₹76 each.
The portion of shares reserved for non-institutional investors was subscribed just 14%, while that for qualified institutional buyers (QIB) was subscribed 1.03 times.
The overall subscription was 1.11 times on the first day of the three-day share sale, with bids for 756.43 million shares received against the 681.38 million shares on offer.
Zomato is India’s first major new-age technology company to go public. The keen retail interest seen in the Zomato IPO on the first day is likely to bode well for other technology companies preparing their IPOs, including Paytm, MobiKwik, Nykaa and PolicyBazaar.
The IPO, which aims to raise ₹9,375 crore at the top of the price band of ₹72-76, will close for subscription on 16 July.
“Strong participation by institutions in the anchor book bodes well for the IPO, and we expect continued strong demand for the IPO from both institutional and retail investors alike. Given the strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities, we believe Zomato will command a premium to global peers," Jyoti Roy, equity strategist at Angel Broking Ltd, said.
Equity markets have witnessed frenetic participation by small investors of late. However, the Zomato retail subscription is a bit pale compared to the Burger King India Ltd IPO in December. The ₹810 crore issue of the quick service restaurant (QSR) chain was subscribed over three times at the end of the first day of bidding. The retail segment was finally subscribed 68 times with an overall subscription of 157 times. To be sure, the size of the Zomato IPO is far more than that of Burger King India.
Among IPOs in the past year, the retail segment of Nureca Ltd was subscribed the highest at 167 times. Similarly, IPOs of others such as Nazara Technologies, Happiest Minds Technologies, Easy Trip Planners, Burger King India, Chemcon Speciality Chemicals, Mazagon Dock Shipbuilders, Mrs Bectors Foods and MTAR Technologies all saw their retail segments subscribed between 28 and 166 times. However, analysts have flagged Zomato’s steep valuation, which may pinch investors later.
“In our view, the Zomato IPO is richly valued, which may not sustain in the long run. Retail investors may apply for this IPO for short-term listing gain. However, these gains may not sustain themselves in the long run," said Amit Jain, chief strategist and co-founder of Ashika Wealth Advisory.
Analysts feel that given its first-mover advantage, Zomato is in a sweet spot, as the online food delivery market is just taking off. The company enjoys a couple of moats, and with economies of scale playing out, losses have reduced substantially. Zomato operates in a duopoly—the other entity being Swiggy—and has created strong entry barriers with a widespread network.
“We believe a better service mix and a robust operating model will accelerate the revenue growth momentum. With growth expected to pick up in the forthcoming years after a pandemic, and the rising use of the online platform, we expect the company to break even at operating levels in FY22, making the IPO more lucrative," said Naveen Kulkarni, chief investment officer, Axis Securities.
Zomato is yet to turn profitable. Over FY18-21, the company grew its revenue at a compound annual growth rate of 62%. While business is at a nascent stage and began gaining traction since FY18, Ebitda losses have come down significantly. In FY21, Zomato recorded 32.1 million average monthly active users, of which 6.8 million MTUs (monthly transacting users) placed transactions. It is present in 525 cities in India, with almost 150,000 active food delivery restaurant listings and 170,000 active delivery partners at the end of FY21.
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