Zomato IPO has an aggregating value of up to ₹9,375.00 Crores. The issue is priced at ₹72 to ₹76 per equity share. The minimum order quantity is 195 Shares.

The IPO opens on Jul 14, 2021, and closes on Jul 16, 2021.

Link Intime India Private Ltd is the registrar for the IPO. The shares are proposed to be listed on BSE.

On April 28, 2021, food delivery platform Zomato filed a Draft Red Herring Prospectus (DRHP) with market regulator SEBI. According to Zomato’s DRHP, the company will offer equity shares worth up to Rs 8,250 crore. Rs 7,500 crore will be raised through a new issue, while Rs 750 crore will be raised through an offer for sale to its existing investor, Info Edge. (In Charts| Zomato IPO: Key financials, risks listed in DRHP)

Industry Overview

India macroeconomic factors and digitization trends
Since 2015, India has witnessed approximately 7% average growth in real GDP. The year 2020, however, was an aberration due to the COVID-19 pandemic. India’s economy contracted by 7.3% in Fiscal 2021 as per India’s National Statistics Office data because of the slowdown in economic activities in the first quarter of Fiscal 2021 (i.e., April 2020 to June 2020) due to one of the most severe nationwide lockdowns imposed globally.

India was expected to have a very strong recovery with an estimated growth rate of 11% to 11.5% for Fiscal 2022 on a real growth basis as per official estimates in the Economic Survey of India 2020 to 2021 and International Monetary Fund projections. However, due to the severe impact of the second wave of COVID-19 pandemic, the projections have undergone further normalization to be at a growth of 9.5% for Fiscal 2022 as per the Reserve Bank of India.

Still, this is highest among the larger economies and is higher as compared to 5.4% projected growth for the global economy as per the United Nations. As the economy stabilizes to a healthy growth of 6% to 7% in real GDP thereafter, we expect India’s GDP (at current prices) to be US$4.2 trillion by 2025. As per Centre for Economics and Business Research (“CEBR”), India is expected to become the third largest economy in the world by 2030.

Internet and smartphone penetration in India has more than doubled from 2015 to 2020 and is increasing further. Since 2000, a large part of India has skipped the traditional fixed line phones and embraced mobile. 90% of all phone connections were fixed lines in 2000, and today over 98% of all phone connections are mobile, as per Department of Telecommunications, GoI.

Internet adoption has picked up quickly, as data rates in India have declined. In 2016, with the launch of Reliance Jio, data prices became affordable at less than US$1 per GB and India’s internet adoption skyrocketed from 310-330 million internet users in 2015 to 660-690 million users in 2020.

At the same time, there has been significant growth in adoption of smartphones, driven by availability of low-cost alternatives from local as well as global brands. Easy availability of smartphones, cheap data and high speed 4G connections have enabled Indians to embrace digital applications. Compared to China, the digital penetration in India is still low and is expected to grow rapidly.

Total addressable Food Services market opportunity of US$110 billion (₹7.7 trillion) in 2025
Food consumption, at US$607 billion (₹42.5 trillion) in 2020 constitutes around a quarter of India’s GDP. Most of this though, is driven by home-cooked food.

Food Services, defined as non-home cooked food or restaurant food currently contributes only approximately 8-9% to the food market. This is substantially low when compared to global economies like the United States and China which have approximately 47-50% and 42-45% contribution from Food Services respectively (of the total food consumption).

According to RedSeer, as of 2019, we have a large total addressable Food Services market opportunity of US$65 billion (₹4.6 trillion) growing at 9% per annum to US$110 billion (₹7.7 trillion) in 2025 with highly under-penetrated restaurant food-eating behavior today.

Competition
Food Services is a competitive market in India comprising food delivery players like Zomato and Swiggy, cloud kitchens like Rebel Foods and branded Food Services players (including quick service restaurants like Dominos, McDonalds and Pizza Hut, among others).

Food delivery players also compete with multiple other participants in the Food Services industry including restaurants which own and operate their own delivery fleets, traditional offline ordering channels, such as take-out offerings and phone-based ordering, local publications, and other media, both online and offline where restaurants place their advertisements to attract customers.

In this competitive market, Zomato has consistently gained market share over the last four years to become the category leader in the food delivery space in India in terms of GOV from October 1, 2020 to March 31, 2021. The chart below represents year on-year growth of Zomato and the industry.

Company Overview

Zomato’s technology platform connects customers, restaurant partners and delivery partners, serving their multiple needs. Customers use its platform to search and discover restaurants, read and write customer generated reviews and view and upload photos, order food delivery, book a table and make payments while dining-out at restaurants.

According to RedSeer, Zomato is one of the leading Food Services platforms in India in terms of value of food sold, as of March 31, 2021. During Fiscal 2021, 32.1 million average MAU visited Zomato platform in India. As of March 31, 2021, the company present in 525 cities in India, with 389,932 Active Restaurant Listings.

Zomato’s mobile application is the most downloaded food and drinks application in India in each of the last three fiscal years since Fiscal 2019 to Fiscal 2021 on iOS App store and Google Play combined, as per App Annie’s estimates.

Zomato’s Platform Offerings

The business is built around the core idea that over time, people in India are going out to eat at restaurants more than they cook at home.
To capture value out of this shift in customer behavior, there are two core Business-to-customer (B2C) offerings –

(i) Food delivery
According to RedSeer, Zomato consistently gained market share over the last four years to become the category leader in the food delivery space in India in terms of GOV from October 1, 2020 to March 31, 2021.

The company generate a majority of revenue from food delivery and the related commissions charged to the restaurant partners for using the platform. Restaurant partners also spend for advertisements on Zomato platform.

There are three key stakeholders in the food delivery business: Customers, Delivery Partners and Restaurant Partners.

Illustrative economics of a food delivery order

(ii) Dining-out
Customers use dining-out offerings to search and discover restaurants, read and write customer generated reviews and view and upload photos, book a table and make payments while dining-out at restaurants. Zomato is a preferred destination for dining-out search and restaurant discovery in India.

The dining-out services were severely impacted by the COVID-19 pandemic. As of March 31, 2021, there are 389,932 Active Restaurant Listings on Zomato platform and in Fiscal 2021, 61.8 million units of CGC was generated on the platform compared to 157.0 million in Fiscal 2020.

Business-to-business (B2B) offering –
(iii) Hyperpure
Hyperpure is a farm-to-fork supplies offering for restaurants in India. The company source fresh, hygienic, quality ingredients and supplies directly from farmers, mills, producers and processors to supply to our restaurant partners, helping them make their supply chains more effective and predictable, while improving the overall quality of the food being served.

Company supply ingredients spanning fruits and vegetables, groceries, dairy, poultry, meats and seafood, bakery items, gourmet and packaged foods, beverages and packaging to our restaurant partners.

The revenue from sale of traded goods, which includes our revenue from our Hyperpure operations, was ₹2,001.97 million, ₹1,075.86 million and ₹148.88 million in the Fiscals 2021, 2020 and 2019.

(iv) Zomato Pro
Zomato have an exclusive paid-membership program, Zomato Pro, which unlocks flat percentage discounts for the customers at select restaurant partners across both food delivery and dining-out offerings. These discounts are available to the customers on all days in a year (except during a few pre-determined festive days).

Pro Restaurant Partners choose and fund the percentage discount available to Pro Members at their restaurants. Customers become Pro Members by paying a membership fee yo the Company.

The revenue from sale of our subscription product, Zomato Pro in India for Fiscals 2019, 2020 and 2021 was ₹562.00 million, ₹878.84 million and ₹575.14 million respectively. As of March 31, 2021, we had 1.5 million Pro Members and 25,443 Pro Restaurant Partners in India.

Competitive Advantage

  • Among the most prominent Food Service Delivery platforms.
  • Consumer brand equity has been recognized throughout India.
  • On-demand hyperlocal delivery network that is widespread and efficient.
  • A comprehensive network of 131,233 restaurants and 161,637 delivery partners.

Promoters and Financials

Zomato is a professionally managed company with no identifiable promoters under the SEBI ICDR Regulations and Companies Act.


IPO Details

For more information about IPOs, kindly visit A Guide To Indian Stock Market IPO Process

Kindly share if you find this post informative