All eyes are set on India?s first food unicorn startup listing on Friday. Zomato will get listed on both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) at 10 am on July 23. The Rs 9,375 crore issue of Zomato received a stellar responses from investors when it had opened for subscription last week. Investors put a bid worth Rs 2.13 lakh crore on Zomato issue price.
Zomato initial public offering (IPO) opened for subscription from July 14-16. The food delivery application has fixed a price band of Rs 72-76 per share. The company aimed to raise Rs 9,375 crore through the IPO which comprises a fresh issue of equity shares worth Rs 9,000 crore and an offer for sale (OFS) worth Rs 375 crore by existing investor Info Edge (India).
Considering the strong response from the investors and strong premium in the unofficial market, experts predict a strong listing gains for Zomato. The analysts suggest Zomato stock could list at over Rs 100 per share, more than 30 per cent premium over final issue price. The analysts also predict at least 15 per cent premium on the listing day.
Zomato will be the first internet companies and startups in India to get listed on bourses. The proceeds from the fresh issue will be used towards funding organic and inorganic growth initiatives and for general corporate purposes, according to the information in the red herring prospectus.
Zomato’s revenue had jumped over two-fold to around Rs 2,960 crore from the previous fiscal year in 2019-20. The comp its earnings before interest, taxes, depreciation and amortisation (EBITDA) loss was around Rs 2,200 crore. In February, Zomato had raised over Rs 1,800 crore in funding from Tiger Global, Kora and others, valuing the online food ordering platform at around Rs 40,000 crore.
?We expect Zomato’s revenue to grow at a CAGR of 64.7% to Rs 8,910 cr by FY24 from Rs 1,994 cr (FY21), driven by 65.1% CAGR in FDS to Rs 7,722 cr, Hyperpure CAGR of 68.5% to INR 958 cr and platform services CAGR of 43.6% to Rs 231 cr. The FDS metrics of GOV / no. of orders / monthly transaction users is expected to improve by 53.0% / 51.4% / 48.8% CAGR to Rs 33,981 cr / 82.9 cr / 22.4 mn, respectively. The normalization of AOV down to Rs 370 in FY22 will result in contribution turning negative; however, we expect a sustained positive contribution/EBITDA from FY23/FY25 respectively given the sharp improvement in AOV to INR 430 in FY25. Take rates are expected to improve (globally take rates are at 30%) while discounting is expected to diminish on the back of improved penetration, onboarding of new cities beyond 525, foray into the adjacent verticals of nutraceuticals & groceries, app ordering convenience and consumer addiction,? said Vinit Bolinjkar, head of research, Ventura Securities Ltd.
?Zomato is looking to raise Rs 9,375 crore. This will improve ZOMATO’s cash levels to Rs 15,000 crore, which will serve as currency for M&A (Zomato is looking to acquire a minority stake in Grofers for $100 mn), investments in tech & customer acquisitions and general corporate purposes. This cash pile should easily help sustain burn-rates for a good 7-9 years. At the upper price band of INR 76 per share, ZOMATO’s valuation of 5.1X FY24 EV / Sales may appear optically demanding. However, given the fledgling nature of the business, duopoly market, immense upside penetration potential, humungous untapped online opportunity of the adjacent verticals, and scarcity premium,? he added.
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