Zomato launches $1.25bn IPO to capitalise on order demand surge

Indian food delivery group Zomato announced it would launch its $1.25bn initial public offering next week as it seeks to capitalise on the surge in order demand as consumers migrated online during the coronavirus pandemic.

Zomato, one of India’s most high-profile tech unicorns, is set to lead a wave of tech IPOs in the country this year, with listing around the world running at a record pace.

Paytm, a payments platform and financial services company, is also planning an IPO before the end of the year. SoftBank-backed insurance aggregator PolicyBazaar, make-up retailer Nykaa and delivery company Delhivery may also list.

Zomato’s offer, which opens on July 14 and closes on July 16, includes a fresh share issue worth Rs90bn ($1.2bn), priced at Rs72-Rs76 per share. Its biggest shareholder, digital group Info Edge, which has an 18.5 per cent stake in Zomato, has also offered to sell shares worth up to Rs3.75bn.

The dual listing on the National Stock Exchange and the Bombay Stock Exchange would give Zomato a valuation of about $8bn, with trading expected to start around July 27.

“What we are disrupting here is the Indian habit of home-cooked food,” said Zomato co-founder Gaurav Gupta during a pre-IPO media presentation. “We are more of a food ecosystem play.”

Zomato, which is backed by China’s Ant Group and Uber, is in a head-to-head battle with Swiggy, which is backed by South Africa investment group Naspers and Japan’s SoftBank, for food services supremacy in India.

The fight has been cash intensive, with both companies burning through billions of dollars to squeeze competitors out of the market. Uber sold its food delivery business in India to Zomato last year in exchange for an almost 10 per cent stake after haemorrhaging users and funds.

Gupta said Zomato’s losses had decreased significantly but declined to comment on when the company expected to be profitable. “Covid definitely has accelerated that journey for us,” said Gupta. “The business is becoming more sustainable.”

Mohit Nichani, Zomato chief financial officer, said that after its listing, Zomato would have $2bn of cash in the bank. “We have a long runway with the cash that we have,” he said.

Zomato reported $183.6m in revenue between April and December last year, with losses of $91.8m.

China’s Meituan was one of the first food delivery services platforms to become profitable in 2019, but it remains the exception among the world’s large delivery start-ups.

Zomato has also benefited from being among a number of large food delivery players competing for India’s still mostly untapped market, including JioMart, the online platform controlled by tycoon Mukesh Ambani, Amazon and Walmart-owned Flipkart. For multinationals, India represents a big growth market outside China.

“In India, Zomato’s listing is the first of its kind,” said Arvind Singhal of consultancy Technopak Advisors. “It should open the path for many such listings in the future.”

“Week after week, the Indian stock market is doing phenomenally well, investor interest is at an all-time high,” said Singhal. “Zomato is a bellwether in many ways, that’s what makes it so special.”

The lead underwriters on the listing are Kotak Investment Banking, Morgan Stanley, Credit Suisse, BofA Securities and Citigroup.