Will Be Right Decision to Invest in Zomato IPO? | Zomato IPO Details | Zomato IPO Review

Zomato IPO Details

Namaskar, I am Saumya Manna and today we will talk about the Zomato IPO. I will tell you the important dates, pros and cons, about the company with the industry overview.

Zomato will use Rs.6750 Crs out of Rs.9375 Crs for its organic and inorganic growth initiatives. Other than this, some of the proceeds will go to fund general corporate purposes.

About Zomato company:

We will know about IPO but let us first talk about Zomato as a company. It was started as a restaurant discovery website in 2008 and today is one of the biggest food delivery companies of India.

There are mainly 2 companies competing, Zomato and Swiggy but another player is coming named Amazon. Zomato earns revenue from 4 segments, first food delivery where it plays as an agent between restaurants and customers.

It has 169802 delivery partners and 148384 restaurant partners with an average of 6.8 million orders in FY21. The 2nd is Zomato Pro which is a paid customer loyalty program that provides discounts and other incentives.

By March 2021, it has 1.5 million Pro members and 25443 restaurant partners. It is also a restaurant listing platform with 389932 listings as of March 2021.

Zomato has a subsidiary company named Hyperpure that supplies raw materials like grains, veggies to restaurants. By March 2021, it had 9225 restaurants as its customers across 6 cities.

It also operates in 23 other countries like UAE, Australia, NZ, Philippines, Indonesia, Malaysia, USA, Lebanon, Turkey, Czech, Slovakia, and Poland but 90% of their revenue comes from India.

The company was heavily impacted due to the Covid national lockdown but still saw a recovery, and saw a 23% YoY growth in gross order value as compared to last year.

Zomato with funding giant Tiger Global announced a $120 million investment in Grofers. And Grofers can be considered a country front runner in online grocery shopping.

Due to Covid, we have seen a rise in online grocery shopping and by this investment Zomato will enter this space. Zomato now owns 9.25% of Grofers, and 9.27% of its B2B arm Hands on Trades.

Growth of Zomato

Let us now discuss the industry trends, rising population, growing urbanization and internet penetration, we can see a lot of growth in the Indian internet segment.

The internet users in India is expected to reach from 0.97 to 1 billion by FY25, that is 660 to 690 million in FY20, only 24% of the total internet users shop online.

Which is very low as compared to a vast economy like China where this number is 69%, meaning there is a lot of scope for the Indian market.

From 2019 to 2025, the food services market of India is expected to grow with 9% CAGR to $110 billion or Rs.7.7 trillion. If we talk about the food services, this is only 8-9% as compared to USA which is 47-50%, and China with 42-45%, meaning very few people order food online and as mobile internet usage is increasing so is this market.

There is a lot of competition like Zomato and Swiggy, cloud kitchens like Rebel foods, and quick food services like Dominoes, Mcdonalds, Pizza Hut, etc.

In the online grocery space, there are many big names like Reliance Retail, Big Bazaar, Dmart etc and now Amazon too. Another name is Big Basket which has been recently acquired by Tata Sons.

Zomato financial reports

Let us now talk about the financials of the company. The company's revenue increased from 1397.72 Crs in FY19 to 2742.74 Crs in FY20. But due to Covid the revenue fell to 2118.42 Crs in FY21.

The company is not making profit but the losses have reduced from 2385.6 Crs in FY20 to 816.43 Crs in FY21. The OPM is -28.95%, NPM is -38.54, EPS is -1.51% and the debt is negligible at 0.0002.

Pros of investing in Zomato IPO

Zomato has covered nearly all aspects of the restaurant food chain, from procurement to online delivery, to advertisements and expected payment mechanism. Zomato has shown 7x growth from FY18 as compared to the industry growth of only 3.6x. 

Now let us discuss the network effect which is the benefit one gets when more and more people use it. The more people use Zomato, the more restaurants will be listed  and will create a network.

In fiscal 2021, Zomato's delivery partners fulfilled 94.1% of all orders with a median time of 30 mins in FY21. The company has an efficient and high demand hyperlocal delivery network that can be monetized very well. Zomato is a strong consumer brand recognized all over India. People think of food as soon as they listen Zomato

Let us now discuss the cons 

The first being that the company is still not profitable, nd will be same for some time as their expenses are expected to increase.

If Zomato enters the online grocery or payment aggregator business, it will burn a lot of cash which will delay their profitability. Amazon and Big Basket with Tata sons are also entering the market which is tough competition.

The competition in the food delivery segment with Swiggy, Dominos, rebel foods will make prices and margins competitive. The place where customers get lowest rates, they will shift, meaning earnings and margins cannot be high.

The next is that it is backed by Jack Ma's Ant Group and they say they will always be a foreign-owned and backed company. Meaning they will have to fulfill many requirements under the FDI policies.

Zomato has said that they might not be able to make use of any commercial business activity or investment with the Govts permission.

Right now the company treats its delivery partners as independent contracts and pays them on a commission basis. But if in the future, if a union is made or they are made. Zomato employees, then the financial burden would increase, and there will be a further delay in their being profitable.

Zomato ipo date and price in india

Now let me tell you the important details regarding the IPO. The IPO will be open between 14th to 16th July, it is a book build issue IPO with face value of Rs10/share.

The price band is Rs.72 to 76 with a minimum of 1 lot that includes 195 shares. The total issue size is 9375 Crs out of which fresh issue is of 9000 Crs and 375 Crs for OFS.

These article are only for educational purposes, there is no buying/selling recommendations. On that note, I Saumya Manna signing off, Bbye, take care, keep calm and invest on.


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