Five takeaways from Zomato’s IPO filing


Eleven years after it was founded, online food ordering and restaurant discovery platform Zomato took a big step toward a public listing on Wednesday.

The company
filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi), detailing plans for its long-awaited public listing.

It is expected to be one of the largest initial public offerings ever for an Internet startup in India.

A DRHP is a publicly available document of a company that is planning to raise money from the public which it files with the market regulator. It outlines critical information and details about its business operations and financials. This includes details about its promoters, reason for raising money, how the money will be used, risks involved with investing in the company, and so on.

Five takeaways from the filing:

Size of the offer: In its filing, Zomato said it intends to raise Rs 8,250 crore (approx $1.1 billion) through its public listing, of which Rs 7,500 crore (approx $1 billion) will be through a fresh issue of equity shares. The remaining Rs 750 crore will be
raised through an offer for sale by existing investor

, the company’s earliest backer.

Possibility of a pre-IPO round: The company may consider a private placement of equity shares amounting to Rs 1,500 crore prior to filing the red herring prospectus. The offer size of the pre-IPO round must constitute at least 10% of the post-offer paid-up equity share capital.

Growth and Covid impact: Zomato said its revenue from operations has grown from Rs 466 crore in FY18 to Rs 2,604 crore in FY20, signifying 5.5X growth over the three-year period. In the nine months that ended December 31, 2020, the company said its revenue from operations stood at Rs 1,301 crore.

The company acknowledged the severe hit its food delivery and dining out service business took in the first quarter of FY21, when restaurants were shut during the nationwide lockdown. However, the company recorded the highest gross order value in its history in the third quarter of FY21

“The accelerated growth of our business stemming from the effects of the Covid-19 pandemic may not continue in the future,” the prospectus read.

Also Read:
ETtech IPO Watch | How Zomato’s cap table has evolved

How it will use IPO money: The company said it would use 75% of the gross proceeds from its IPO — Rs 5,625 crore — to fund organic and inorganic growth initiatives for five years. Its organic initiatives include customer and user acquisition, investing in its delivery infrastructure, and building its technology infrastructure. Among its inorganic initiatives, Zomato said it would continue to seek out and evaluate opportunities for acquisitions and strategic initiatives. It said it had benefited significantly from acquiring Uber’s food delivery business in FY20 as well as logistics provider Carthero in FY18.

“We have made these investments in the past, and we expect these to continue to be critical for the growth of our business in the future,” it said.

The company added that it would not use more than 25% of its net proceeds (gross proceeds minus offer-related expenses) for general corporate purposes.

As of December 2020, the company had 161,637 active delivery partners.

Risks: The prospectus highlighted 64 potential risks the company faces that could impact its business and future ambitions. Among the 38 risks related to business and industry were the company’s history of losses, the impact of Covid-19 and similar public threats, and “intense competition in food delivery and other businesses”.

Among its competitors, it highlighted food delivery player Swiggy, cloud kitchens like Rebel Foods, and branded food services players (including quick-service restaurants such as Dominos, McDonald’s and Pizza Hut, among others).



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