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ZOMATO Limited is one of the leading Food Services platforms in India. Its technology platform connects customers, restaurant partners and delivery partners, serving their multiple needs. Zomato has two core B2C offerings, Food delivery and Dining-out in addition to the B2B offering Hyperpure. Another important part of the business is Zomato Pro, which is the customer loyalty program and encompasses both food delivery and dining-out. As of 31st Mar 2021, Zomato was present in 525 cities in India, with 389,932 active restaurant listings along with presence in 23 countries outside India.

Positives: (a) Strong network effects driven by unique content and transaction flywheels. (b) Company’s widespread and efficient on-demand hyperlocal delivery network (c) Zomato has a technology and product-first approach to business (d) Zomato is a strong consumer brand recognized across the length and breadth of India.

Investment concerns: (a) The company has a history of net losses and anticipates increased expenses in the future. (b) It may not be able to sustain historical growth rates going forward. (c) The COVID-19 pandemic, or a similar public health threat, has had an impact and could further impact the business, cash flows, and financial condition of the company. (d) Failing to retain existing restaurant partners, customers or delivery partners or failing to add new restaurant partners, delivery partners or customers, may have an adverse impact on the business.

Outlook & Valuation: The IPO is being valued at price/sales of 28.6-29.9x FY2021 revenues of `1,993 crore. Post a 23.5% degrowth in revenues in FY2021 due to the Covid-19 pandemic, growth is expected to pick up sharply from FY2022. Moreover, Zomato has been able to reduce its losses in FY2021 despite a degrowth in topline. We expect losses to reduce further over next couple of years due to rebound in growth and improving unit economic. Given strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities, we believe that Zomato will command a premium to global peers and hence recommend to ‘SUBSCRIBE’ to the IPO.

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