Finally, India is witnessing IPO applications from startups as online food delivery platform Zomato has filed draft papers with the Securities and Exchange Board of India (SEBI) for an ₹8,250 crore Initial Public Offering (IPO) on April 28, 2021.
As reported by the IndiaTechDesk, Zomato has been one of India’s biggest startup success stories over the past decade, along with its chief rivals Swiggy, Flipkart, and Byju’s.
Unofficial trend puts value to more than ₹ 50,000 crores
Dealers in the grey market, or the unofficial market for trading in unlisted shares, said the company could be valued at more than ₹ 53,000 crore. This, which comes as excellent news for Info Edge, the Delhi-based internet services firm that put a mere Rs 60 lakh as its first investment in Zomato in 2010. It is now sitting on 77x returns from its total equity investment of Rs 144.31 crore.
The share float comprises a fresh issue of equity shares worth ₹7,500 crore and an offer for sale worth ₹ 750 crore by Info Edge (India) Ltd. At present, Info Edge holds 18.55 percent in Zomato, while the Alibaba group owns 16.53 percent of the restaurant aggregator via Alipay and Antfin. On Tuesday, Info Edge had said that it would sell a stake worth Rs 750 crore in the Zomato IPO.
In February, Zomato had raised $250 million (over ₹1,800 crore) in funding from Tiger Global, Kora Management, and others, valuing the online food ordering platform at $5.4 billion. Zomato said proceeds from the fresh issue would be used towards funding organic and inorganic growth initiatives and general corporate purposes.
Company to invest more in infrastructure for better business
The company pointed out that it will continue to invest in three core areas to grow its business. These include customer and user acquisition, delivery infrastructure, and technology infrastructure. The company added that it had made these investments in the past, and they will continue to be critical for the growth of its business in the future.
Zomato has not only struggled to generate profit, but its track record of generating cash flows out of its operations has been less than exemplary. Zomato has seen cash outflow from operating activities of ₹ 269 crore in the nine months ended December 2020. It has reported negative operating cash flow in the past three financial years.
Much of the negative cash flow has been because of the company’s hyper investment in promotions and operations to scale up its operations and attract new customers. Online platform companies are considered to be large cash consumers due to their hefty investments in acquiring consumers.
Brokerage firm IIFL Securities, in a report earlier in 2021, said it expects the company to churn out operating profit soon enough in the current financial year, given the hyper-scale achieved by the delivery business during the pandemic. IIFL Securities expects Zomato’s food delivery net revenues to grow 48 percent annually over the next five years, but fixed costs are expected to grow only at a 27 percent annual rate.