IGI Logo

Salient features of the IPO:

* Backed by Info Edge India Ltd. and ANT Financials, Zomato Ltd. (Zomato) - a food delivery company, is planning to raise up to Rs. 9,375cr through an IPO, which opens on 14th Jul. and closes on 16th Jul. 2021. The price band is Rs. 72 - 76 per share.

* The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS portion. Of the net proceeds from the fresh issue, Rs. 6,750cr will be utilized to fund the organic and inorganic growth initiatives of the company.

* On the back of robust demand from investors, Zomato has increased the fresh issue size by 20%. However, its only selling shareholder i.e. Info Edge India Ltd. has reduced the OFS size to Rs. 375cr from Rs. 750cr planned earlier.

* In the recent past, Zomato has executed couple of small sized private placements, which were at significant discount to the issue price.

Key competitive strengths:

* Strong network effects driven by unique content and transaction flywheels

* Widespread and efficient on-demand hyperlocal delivery network

* Technology and product-first approach to business

* Strong consumer brand recognized across the length and breadth of India.

Risk and concerns:

* Unfavorable government policies

* Inability to attract customer and restaurants

* Reliance on discounts to drive business growth

* Continued loss making operations

* Competition

Peer comparison and valuation:

Currently, the company is loss making. Also, there is no listed domestic peer having same line of business as the company. We have considered global peers for valuation benchmarking. At higher price band of Rs. 76, Zomato is demanding a FY21 P/S multiple of 29.9x, which is at premium to the global peer average. Thus the issue seems to be overpriced.

Below are a few key observations of the issue:

* In 2020, domestic food consumption stood at around a quarter of India’s GDP. Historically, food consumption was driven by homecooked food and restaurant food (or Food Services). Currently, Food Service contributed around 8-9% to the total food consumption market and is substantially lower when compared to the United States and China. According to RedSeer, India’s total addressable Food Services market was at USD 65bn in 2019 and is further expected to grow to USD 110bn by 2025.

* Also the domestic restaurant market is highly fragmented, largely dominated by standalone restaurants and with only 6-7% of the value being driven by chain restaurants. These standalone restaurants have limited expertise to further expand their business. Thus, presence of aggregators becomes more important as they help the market grow by giving restaurant partners (both small and large) to market, engage and acquire customers without any need of further investments.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://choicebroking.in/disclaimer

Above views are of the author and not of the website kindly read disclaimer