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Retail investors lapped up shares of food delivery platform Zomato Ltd as the much awaited initial public offering (IPO) opened for subscription on Wednesday. The retail investor portion was subscribed nearly 2.85 times at the end of the first day of the share sale.

At the upper end of 72-76 price band for the issue, the IPO drew retail bids worth roughly Rs2,655 crore. The segment was fully subscribed within a few minutes of opening, enthused by the marquee anchor investors that pumped 4,196 crore on Wednesday. Zomato allocated 552.17 million equity shares, to anchor investors, at a price of 76 per share.

Zomato is the first major new-age technology company to attempt a listing on Indian bourses. The keen retail interest witnessed in the Zomato IPO on the first day is likely to bode well for other technology companies that are waiting in the wings to tap the markets with their IPOs. These include Paytm, Mobikwik, Nykaa, PolicyBazaar among others.

Overall subscription of Zomato IPO was 1.11 times on the first day till 5pm. Zomato share sale received bids for 756.43 million shares against the issue size of 681.38 million shares. The portion of the share sale reserved for non institutional investors was subscribed just 14%, while that for qualified institutional buyers (QIB) was subscribed 1.03 times.

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 strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities, we believe that Zomato will command a premium to global peers," Jyoti Roy - DVP- Equity Strategist, Angel Broking Ltd said.

Strong retail participation in the Zomato IPO comes at a time when equity markets are witnessing frenetic investing activity by small investors. However, it is a bit pale compared to Burger King IPO in December last year. The 810 crore issue of the quick service restaurant (QSR) chain, Burger King India Ltd was subscribed over three times at the end of first day of bidding. Retail segment of Burger King was subscribed 68.15 times with an overall subscription of 156.65 times. To be sure, the size of the retail book in Zomato’s IPO is far bigger compared to the number of shares that were available for such investors in Burger King India.

As primary markets opened up to a busy session last year following a strong rebound in stock markets post covid outbreak in India, retail investors flocked to subscribing IPOs. Retail segment of Nureca Ltd was subscribed 166.65 times, highest in the last one year. Similarly, IPOs of other companies such as Nazara Technology, Happiest Minds Technologies, Easy Trip Planners, Burger King India, Chemcon Speciality Chemicals, Mazagon Dock Shipbuilders, Mrs Bectors, MTAR Technologies saw their retail segments subscribed between 28 to 166 times.

However, analysts have flagged concerns about steep valuations which may pinch investors of Zomato later.

"In our view, 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," Amit Jain, Chief Strategist and Co-founder of Ashika Wealth Advisory said.

Analysts feel that given its first-mover advantage, Zomato is in a sweet spot, as the online food delivery market is at the cusp of evolution. It enjoys a couple of moats and with economies of scale playing out, the losses have reduced substantially. Zomato operates in a duopoly—the other player 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 online platform, we expect the company to breakeven at operating levels in FY22, making the IPO more lucrative," Naveen Kulkarni, Chief Investment Officer, Axis Securities on this IPO listing.

Zomato is yet to turn profitable. Over FY18-21, the company grew its revenue at 62% compound annual growth rate (CAGR). While business is at a nascent stage and began gaining traction since FY18, Ebitda losses have reduced a lot.

During FY21, Zomato recorded 32.1 million average monthly active users (MAUs), 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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