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BACKGROUND

Zomato is one of the leading Food Services platforms in India in terms of value of food sold, as of March,2021. Platform connects customers, restaurant partners and delivery partners, serving their multiple needs. The company’s 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. The company is present in 525 cities in India, with 389,932 Active Restaurant Listings. They also have a footprint across 23 countries outside India as of March 2021, wherein they have taken a conscious strategic call to focus only on the Indian market going forward looking at the growth opportunity.

Details and Objects of the Issue

The public issue consists of Rs 9375 cr. Offer for sale of Rs ~375 cr by Infoedge. Fresh issue consist of Rs 9000 cr which will be used for

* Funding organic and inorganic growth initiatives Rs 6750 cr. Organic growth initiatives include Customer and user acquisition, Delivery infrastructure,Technology infrastructure

* General corporate Purpose

Key Highlights:

* Presence in food service market which is currently under penetrated in India

* Zomato’s Food delivery Business growing above the industry

* Improving Financials however continues to burn cash

Valuation and Recommendation

Over FY19 -21, the company has grown at a CAGR of 23.2% wherein FY21 was impacted due to Covid. The company is raising Rs 9000 cr for organic and inorganic growth initiatives. The company has been investing in advertisement and sales promotion to gain market share. During FY21, 68.0% of the company’s new customers were acquired organically and not through any paid advertisements. With scaling of business, Improving operating efficiencies, and lower advertisement cost led to lower loss on the margins.

With this FY21 Ebitda margin loss reduced and stood at -23.4% in FY21 vs -88.5% in FY20. Improved EBitda also improved cash flow from operations where Cash burn has also been reduced to Rs -1017.9 cr in FY 21 Vs Rs -2143.6 cr in FY 20. However, with pandemic normalizing some of the cost is likely to come back which may impact cash flow going ahead. Although the growth opportunity for Zomato is high, however, being into a highly competitive market, the company has to continuously invest to gain market share. Revenue if not scaled in comparison to investment may impact the profitability and lead to burning cash even going ahead and the Company may not get capital to burn before it turn cash positive. At the given upper price band of issue of Rs 76, Zomato is offered at EV/ Sales of 28.3x FY21. We have Neutral view to the issue.

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