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Home / Markets / Ipo /  Zomato shares make steady stock markets debut, list at 53% premium

MUMBAI: Shares of Zomato made a steady stock markets debut on Friday. The food delivery unicorn listed at 116 apiece on the stock exchanges, a 52.63% premium over the issue price of Rs76.

The much hyped initial public offering (IPO) of Zomato was subscribed 40.38 times. The offer received bids for 29.04 billion equity shares against 719.23 million equity shares on offer.

The IPO, which aimed to raise Rs9,375 crore at the upper of the price band of Rs72-76, had opened for subscription on 14 July. It had raised Rs4,196 crore from anchor investors, where marquee investors were allotted 552.17 million shares at Rs76 each.

With a total subscription of 43.08 times, Zomato IPO was the tenth most subscribed IPO for the calendar year 2021. MTAR Technologies was the highest subscribed IPO with more than 200 times followed by Nazara Technologies with 175.5 times.

Ahead of Zomato Ltd’s IPO, analysts were optimistic about listing gains, but were cautious about the company’s long-term risks. The expensive valuation demanded at a time when food delivery services continue to make losses and the competition from Amazon’s proposed entry into the segment have been making analysts wary.

“Predicting growth trajectory at this juncture is little tricky for the next few years. The valuation also appears expensive at 25 times FY21 enterprise value to sales compared to average of 9.6 times for global peers and 11.6 times for Indian quick-service restaurants (QSRs). Though, valuing such early stage businesses on plain vanilla financial matrix might not give the right picture and may look distorted," said Sneha Poddar, a research analyst at Motilal Oswal Financial Services Ltd.

Zomato operates in a duopoly—the other player being Swiggy—and has created strong entry barriers with a widespread network. “It operates in a highly under-penetrated market where of the total food consumption in India, only 8-9% is from restaurants, of which only 8% is online food delivery. This is highly under-penetrated when compared with bigwigs like the US or China, where restaurant food/online food delivery matrix stands at 40-50% each," Poddar said.

Zomato is yet to turn profitable. Over FY18-21, the company's revenues grew 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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