Zomato is looking to raise up to Rs 8,250 crore ($1.1 billion) through an initial public offering (IPO), preliminary documents filed with capital markets regulator Securities and Exchange Board of India (Sebi) showed.
The offer comprises a fresh issue worth Rs 7,500 crore and a Rs 750-crore offer for sale by existing shareholder Info Edge.
The food tech start-up that mopped up $910 million from investors through 2020 and early 2021 is believed to be eyeing a much bigger valuation than the current claimed valuation of $5.4 billion. Zomato and Swiggy are today the leaders, in what RedSeer estimates will be a $110-billion market by 2025.
Zomato’s revenue from operations grew 98.44% to Rs 2,604.73 crore in FY20 while losses increased by as much as 136.14% to Rs 2,385.6 crore. In the nine months to December 2020, the company’s operational revenues stood at Rs 1,301.34 crore while losses totalled `682.19 crore. The company sees food delivery as a 30% Ebitda margin business in steady state and dining out and B2B at 50% and 5-10%, respectively.
A recent Goldman Sachs report said Zomato claimed it has a market share of 55% in the food delivery space. Zomato also claimed it had a first-mover advantage in tier-two cities and also a higher share in these markets. While the basket size in these cities is 30% lower, the cost of delivery too is about 50% lower, resulting in lower wages, and thus the unit economics is similar to those in top-tier cities. The start-up’s average order value for food delivery increased to Rs 407.8 in Q3FY21 from Rs 264.6 from Q1FY20.
While Swiggy is largely focused on delivery, Zomato also has a dining out and a B2B supply business. The company said its strategy of curating a rich content of restaurant listings attracts more consumers to its platform—as many as 69.3% of its new users during the nine months ended December 31, 2020 were acquired organically and not through any paid advertisements, it said. A wide network of 161,637 active delivery partners and 132,769 active food delivery restaurant partners add to its growth.
In an indication of how competitive the market is Zomato said in the draft red herring prospectus it intends to use “at least 40%” of the IPO proceeds to fund customer acquisition by way of discounts, advertising, marketing, expanding delivery network and to build on its technology infrastructure. The company acknowledged costs would increase over time and “our losses will continue, given significant investments expected towards growing our business”.