Daily News

Zomato deal for 9.3% stake in Grofers gets CCI nod

The Competition Commission of India (CCI) has approved Zomato’s proposal for a 9.3% share in Grofers and Hands-on Trades, an online grocer. This would be Zomato’s first foray into online grocery retail.

“CCI authorizes proposed combination including the acquisition of approximately 9.3% equity in each of Grofers India Private Limited (Grofers India) and Hands-on Trades Private Limited (HoT) by Zomato Limited (Zomato). As well as, certain rights in each of the targets,” CCI said in a statement on Friday.

Grofers is a key player in the online grocery retailing market. Meanwhile, Grofers International Pte Ltd’s subsidiary Hands-on Trades is a B2B wholesale company that procures products from brands and manufacturers.

Zomato just paid $100 million for a minority investment in Grofers, a food delivery business. The company intends to expand its app to include a supermarket delivery feature.

Why this is a good potential investment?

Due to increased demand as a result of limited personal mobility caused by Covid-19. Online food retailers like; Amazon and Flipkart, Reliance Industries, BigBasket, Grofers, and Dunzo, competed for a piece of the pie. Aggregators such as Zomato and Swiggy also entered the market, with the latter outperforming the former.

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After a hugely successful IPO, Zomato is now attempting to re-enter the online grocery game.

“It’s a huge opportunity (grocery). While online grocery is still in its infancy, it is fast expanding not only in India but around the world. We’re actively experimenting in that market, and we recently invested $100 million in Grofers for a minority share. Our goal is to gain more exposure to that space. Hence, tailor our strategies and plans to that business,” according to Zomato CEO Akshant Goyal.

“We’re introducing online grocery on the Zomato app very soon, and it will go live soon. With that, we’ll venture into the space and see how fast, how rapidly we can scale it,” he added.

For more such updates, keep watching this space!

Daily News

Analysts are wary of Zomato IPO’s big valuation

Zomato Ltd’s initial public offering (IPO) is opening for subscription on Wednesday. Analysts are optimistic about listing gains but are somewhat cautious about the firm’s long-term risks. Zomato’s expensive valuation is coming at a time when the food delivery service company is still making losses. Also, the upcoming competition with Amazon’s entry into the segment is making analysts wary.

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The IPO, which is likely to raise ₹9,350 crores at the top of the price band of ₹72-76. This is one of the largest issues in India after the covid outbreak last year. At this price, Zomato’s valuation will be at ₹59,623 crores, ranking 78th among listed firms in India by the sheer market valuation.

Prediction for the future growth trajectory for the next few years is a little tricky at this point. The food delivery company’s valuation looks expensive at 25 times FY21 enterprise value to sales compared to an average of 9.6 times for global peers and 11.6 times for Indian quick-service restaurants (QSRs). While the valuation for such early-stage businesses on plain vanilla financial matrix might not give the right picture and may look distorted. According to Sneha Poddar, a research analyst at Motilal Oswal Financial Services Ltd.

However, Sneha also added that given its first-mover advantage, Zomato is in a sweet spot. Since the online food delivery market is at the cusp of evolution there are certain advantages for Zomato. The company surely enjoys a couple of moats and with the economics of scale playing out, the losses have reduced substantially.

zomato ipo

How analysts are looking towards Zomato's IPO

Zomato is operating in a duopoly, and the other big player being Swiggy. It has created a strong entry barrier with a widespread network. The food delivery company is operating in a highly under-penetrated market. Of the total food consumption in India, only 8-9% is from restaurants, of which only 8% is online food delivery. There is a highly under-penetration in contrast to the bigwigs like the US or China, where restaurant food/online food delivery matrix stands at 40-50% each.

Rashesh Shah, analyst, ICICI Securities says as Zomato expects costs and losses to rise as it invests in growing the business, it may be risky for the business. The upcoming competition from Amazon, cloud kitchen firms such as Rebel Foods, and QSRs are other risks. Zomato is yet to turn profitable.

However, this new-age digital platform has strong growth potential, which at present is in its evolution. This evolution is driven by favourable macroeconomics, changing demographic profile, and rising adoption of tech infrastructure.

According to Jyoti Roy, an analyst from Angel Broking, the Zomato IPO is being valued at price/sales of 28.6-29.9 times FY21 revenues of ₹1,993 crores. After a 23.5% de-growth in revenues in FY21 due to covid, growth is likely to pick up sharply from FY22. Moreover, Zomato has been able to reduce losses in FY21 even after the degrowth in the topline. For more Zomato news, read this article!

For more such updates, keep watching this space!

Daily News

Zomato IPO opens next week. GMP, expectations, and what lies ahead

Zomato IPO opens next week. The IPO of online food delivery and restaurant discovery platform Zomato is on the buzz for some time now. The company is knocking on doors for its initial public offering (IPO) on Dalal Street as it is set to open for subscription on July 14.

Zomato IPO

The online food delivery company has set the offer price for its public offering at ₹72-76 a share. The offer size can be as much as ₹9,375 crores, which makes it the second-biggest IPO since SBI Cards and Payment Service last year. The price for SBI Cards and Payment Service IPO was set for ₹10,340 crores in March, last year. The issue, which closes on 16 July, contains an offer for the sale of ₹375 crores by the company’s early investor, Info Edge. Also, a fresh issue worth ₹9,000 crores will be on the offer. The stock will most likely list on the exchanges on 27 July.

zomato ipo

The hunger for tech-driven IPO like Zomato is very high which will ensure easy digestion of such IPOs. Such companies will not get their valuation as per the traditional valuation methods. Despite the losses shown in companies’ documents, their valuation is even more than some traditional giants. The ability to reach the doorstep of any customer is a great strength that may open the doors of new business avenues. However, such disruptive businesses are a double-edged sword, as the entry of any big pocketed player may pose a severe threat to the business. From a long-term perspective, we need to constantly track the company’s performance, acquisitions, expansions, and whether the company is heading on the path of profitability continuously.

Zomato IPO details -

  • Issue period: 14 July 2021 – 16 July 2021
  • Size of the IPO: ₹93.75 billion
  • The price band of IPO: ₹72 to ₹76 per share
  • Bid lot for IPO: Minimum lot of 195 shares, and in multiples of 195 thereafter
  • Quota size of the IPO: For the retail category, the quota is fixed at 10% of the net offer. However, for qualified institutional buyers (QIB) at 75% and non-institutional investors (NII) quota at 15%.
  • Global coordinators and Book Running Lead Managers (BRLMs): Kotak Mahindra Capital, Morgan Stanley India, and Credit Suisse Securities (India).
  • Bank of America (BofA) Securities and Citigroup Global Markets India will be managing the issue. Whereas, Link Intime India is the registrar of the issue.
  • GMP: Zomato grey market premium is trading at around 13-15. The numbers are approximately 20% over the upper end of the IPO price band of ₹76, as per market observers. The grey market is an unofficial platform, wherein trading starts after the announcement of the IPO price band. The trading will continue till the listing of IPO shares. The listing will most likely start by July 27.

For more such updates, keep watching this space!

Daily News

Zomato IPO to open on 14 July

Zomato IPO is going to make its debut on July 14, 2021. The Zomato private Ltd. company has set the offer price for its initial public offering at ₹72-76 a share. The issue will open for subscription on 14 July and close on 16 July, as per the earlier announcements.

The issue includes a fresh issue of ₹375 crores and an offer for sale of ₹9,000 crores by Zomato’s current promoter Info Edge India Ltd. Employee reservations were kept at 6.5 million shares.

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Zomato is a tech-driven food aggregator platform that connects customers, restaurants, and delivery partners, serving their multiple needs. It is the first major startup in India to get listed on the stock exchange. The company is paving the route for many other such listings in the future.

The food-tech company is raging with a massive rise in revenue across the business verticals over the past few months. The company has clocked ₹1,367 crores in revenues for the first three-quarters of FY21. The expenses of the food-tech company, were about ₹1,724 crores in an evaluation, resulting in a loss of ₹684 crores.

What are the numbers telling us?

zomato orders

Zomato saw a rise in the number of orders placed on their platform from 3.06 cr in FY18 to 40.31 cr in FY20 and 15.52 cr in FY21. The average order value has also increased from ₹279 in FY20 to ₹398 in 9MFY21 and the discounts have seen a massive cut per order from ₹21.7 to ₹7.3 in 9MFY21.

As of December 31, 2020, Zomato had 3,50,174 active restaurants listed on its platform. In terms of table bookings, 12.2 million covers were booked through its platform in fiscal 2020. As per the official records, Zomato had 131,233 active food delivery restaurants every month, in fiscal year 2020.

zomato ipo

It is fair to say, that the numbers are working in Zomato’s favor as the AOV has increased, discounts have decreased and per unit, economics are looking good in 9MFY21. However, the improvements in the respective metrics are because of the transition of the delivery sector from luxury to necessity.

Despite great numbers, not everything is going great for Zomato, as NRAI has filed a lawsuit against the food-tech company. Also, the NRAI has stepped up the pressure against aggregators by announcing their own app. The emergence of new-age aggregators such as Thrive, Peppo, DotPe, etc will give a tough competition. Even, Amazon is also opening itself for the food delivery business in Bangalore.

Zomato is eyeing an increase in valuation for its upcoming IPO from around $8 billion to up to $10 billion. This increase is due to the rapid increase in online food-ordering, restaurant bookings, and subscriptions for Zomato Pro businesses. Which is causing a significant increase in demand from potential investors for Zomato’s shares.

For more such updates, keep watching this space!