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 much-awaited IPO of online food delivery and restaurant discovery platform Zomato is knocking the doors for delivery of its initial public offering (IPO) on Dalal Street as it is set to open for subscription on July 14. It has set the offer price for its public offering at ₹72-76 a share.
The offer size will likely be as much as ₹9,375 crore, making it the second-biggest IPO since SBI Cards and Payment Services' ₹10,340 crore offer last year in March. 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.
Bid lot: Minimum lot of 195 shares, and in multiples of 195 thereafter
Quota size: For retail category, the quota is fixed at 10% of the net offer while for qualified institutional buyers (QIB) at 75% and non-institutional investors (NII) quota at 15%.
Kotak Mahindra Capital, Morgan Stanley India, and Credit Suisse Securities (India) are the global coordinators and book running lead managers (BRLMs).
Bank of America (BofA) Securities and Citigroup Global Markets India will manage the issue whereas Link Intime India is the registrar of the issue.
GMP: Zomato grey market premium is trading at around ₹13-15, which is 20% over upper end of the IPO price band of ₹76, as per market observers. The grey market is an unofficial platform, wherein trading starts after the announcement of IPO price band till the listing of IPO shares. The listing is likely by July 27.
''The hunger of such tech-driven IPO is very high which will ensure digestion of such IPOs. Such companies will not be valued as per the traditional valuation methods. In spite of such companies posting losses, they are valued even more than some traditional giants," said Abhay Doshi, founder of UnlistedArena.com.
"The ability to reach at doorstep of any customer is a great strength which may open the doors of new business avenues. However, such disruptive businesses are double edged sword, as entry of any big pocketed player may pose serious threat to the business. For a longer term view we need to constantly track company's performance, acquisitions, expansions and whether the company is heading on the path of profitability on continuous basis," Doshi added.
The company’s consolidated loss narrowed to ₹816 crore in FY21 as compared to loss of ₹2,385 crore in the previous year. The company has said that its losses are expected to continue given ‘significant investments towards growing its business.’ Zomato’s Red Herring Prospectus (RHP) hints at a continued recovery across key operational metrics in March 2021, analysts observed.
While the IPO may seem expensive based on FY21 numbers, Jyoti Roy, DVP- Equity Strategist of Angel Broking believes that FY21 was an aberration as business was impacted significantly due to the first Covid wave and the ensuing lockdowns. However, given the strong growth prospects, high barriers to entry and duopoly nature of the food delivery business, in India he believes that Zomato will command a premium to global peers (like Meituan, Doordash, Delivery Hero) and hence the brokerage is positive on the future growth prospects of the company.
Many analysts expect the IPO to do well given the investors interest and the offering that it provides in the consumer tech space.
Those at Jefferies India in a note said that while there are a lot of questions on the minds of investors with respect to the medium-term growth, profitability & cash usage, the FOMO factor should keep the excitement level high, based on investor interactions. Management at the analyst meet sounded upbeat, it said. ‘’At FY20 absolute cash burn run-rate, Zomato's post-IPO cash balance should suffice for 6-7 years and could be even up to 10 years if burn levels are lower than FY20 levels,’’ it said. Separately, the brokerage believes that high growth internet stocks like Zomato may drive de-rating of the traditional stocks including FMCG & retail, over time.
In Edelweiss’ view, the key risk for Zomato is execution vis-à-vis Swiggy, unfavorable regulations and competitive intensity impacting unit economics. It said that while growth remains strong, the valuation is certainly not cheap. ‘’Global peers trade at 2-12x price to sales, but Zomato offers much stronger growth,’’ Edelweiss noted.
Zomato initial share sale could propel the 13-year-old food delivery firm into the ranks of India’s 100 most valuable companies.
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