Zomato IPO sails through on Day 1; retail quota oversubscribed

The initial public offering (IPO) of Zomato got fully subscribed on the first day of the offer. The public offer has received bids for 74,90,59,155 shares till 4.35 pm (IST) against 71,92,33,522 shares offered by the food delivery firm, indicating an oversubscription by 1.04 times. It has fixed a price band of Rs 72-76 for the ongoing initial share sale. Meanwhile, the quota reserved for retail investors was oversubscribed by over 3 times.

The company on Tuesday raised around Rs 4,196 crore from the anchor. The Rs 9,375-crore public offer comprises a fresh issue of equity shares worth Rs 9,000 crore and an offer-for-sale to the tune of Rs 375 crore by Info Edge.

BlackRock, Tiger Global Investments Fund, Fidelity, New World Fund Inc, JP Morgan, Morgan Stanley Asia (Singapore) Pte-ODI, Goldman Sachs (Singapore) Pte -ODI, T Rowe, Canada Pension Plan Investment Board, Government of Singapore, Monetary Authority of Singapore and Abu Dhabi Investment Authority are among the anchor investors. The issue will conclude on July 16.

Should you subscribe?

Hem Securities

With the company consistently gained market share over the last four years to become the category leader in the food delivery space in India in terms of gross order value, the brokerage believes that going forward, funds deployment towards customer and user acquisition and retention expanding delivery and technology infrastructure will increase the growth prospects of the company and make it a candidate for long term investment.

However looking after higher valuation which the company is demanding at the present level, Hem Securities recommended to “Subscribe” the issue for limited listing gain and high long term gain.

Motilal Oswal Financial Services

The brokerage has a ‘Subscribe’ rating on the issue. “Zomato with first-mover advantage is placed in a sweet spot as the online food delivery market is at the cusp of evolution. It enjoys a couple of moats and with the economics of scale started playing out, the losses have reduced substantially. However, predicting the growth trajectory at this juncture is a little tricky for the next few years,” it said. The brokerage further added that the valuation also appears expensive at 25x FY21 EV/Sales compared to an average of 9.6 times for global peers and 11.6x for Indian QSRs. Though, valuing such early-stage businesses on a plain vanilla financial matrix might not give the right picture and may look distorted.

“Investors with a high-risk appetite can Subscribe for listing gains given fancy for unique and first of its kind listing in the food delivery business,” Motilal Oswal Financial Services said.

Ventura Securities

The brokerage also has a ‘Subscribe’ call on the IPO. It believes that the company may report a profit of Rs 226.70 crore in FY23 against an estimated loss of Rs 577.70 crore in FY22. It also estimated that profit may rise to Rs 479 crore in FY24. “This IPO will improve Zomato’s cash levels to Rs 15,000 crore, which will serve as currency for mergers and acquisitions (Zomato is looking to acquire a minority stake in Grofers for $100 mn), investments in tech and 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,” the brokerage added.

Marwadi Shares and Finance Limited

The company is going to list at a price to sales of 29.9 times based on its FY21 sales with a market cap of Rs 59,623.4 crore. As there are no listed peers in India so valuations cannot be compared on a relative basis. “We recommend to “Subscribe” this IPO as the company is one of the leading foodservice platforms in India having recognised consumer brand equity and is well placed to capitalise on the large market opportunity available in India,” Marwadi Shares and Finance said.

Equinomics Research and Advisory

G Chokkalingam, Founder, Equinomics Research and Advisory advised investors to avoid Zomato IPO. “This valuation reminds me of dot com bubble time valuation and consequent burst. Still, if risk-taking investors apply they should book the moment if the company gets listed at gains. It is a long way to go for Zomato to make reasonable profits to justify current valuation in my view,” he added.