Zomato IPO opens for subscription: Should you bid for India's first food delivery unicorn?

The much-awaited IPO of food delivery unicorn Zomato will open today. The company plans to raise Rs 9,375 crore from the share sale.  The price band of Zomato IPO is fixed at Rs 72-76 per share.

Zomato has revised its offer size to Rs 9,375 crore raising it from the previously announced Rs 8,250 crore when it filed draft documents with market regulator SEBI in April.

The IPO will have 75 per cent reserved for qualified institutional buyers (QIBs) and 15 per cent will be reserved for non-institutional investors (NIIs). 10 percent of the issue is available for retail investors.

A day ahead of the IPO,  Zomato raised Rs 4,197 crore from 186 anchor investors on Tuesday. It allotted 55.22 crore equity shares to anchor investors for Rs 76 per equity share. The funds raised from anchor investors are almost 45 per cent of the total issue size.

The IPO will close for subscription on July 16.

Allotment of shares will be done on July 22 and the stock is likely to be listed on BSE and NSE on July 27.

The lot size of Zomato IPO is 195 shares for which an investor will have to spend Rs 14,820. A retail individual investor can apply for up to 13 lots (2,535 shares) by spending Rs 192,660.

The company is eyeing valuation of around $8.5 billion through the IPO.

The share sale comprises a fresh issue of shares worth Rs 375 crore and an offer for sale of Rs 9,000 crore by its current promoter Info Edge India Ltd.  Total 65 lakh shares have been reserved for employees of the company.

The face value is Rs 1.00 per equity share. Zomato filed its draft red herring prospectus (DRHP) in April 2021 with SEBI.

The Zomato IPO has been pre-poned from July 19 to July 14 due to strong domestic demand for the issue.

Info Edge (18.55 per cent) is one of Zomato's leading investors, along with Uber BV (9.13 per cent), Alipay Singapore Holding Pte Ltd (8.33 per cent), Tiger Global (6 per cent), Sequoia Capital (5.98 per cent), co-founder Deepinder Goyal (5.51 per cent), and Temasek Holdings subsidiary (3.65 per cent).

On July 5, Info Edge said it would sell only 50 per cent, or Rs 375 crore, of the initial offer as offer-for-sale (OFS) in the IPO.

Here's a look at what brokerages and anlaysts say about the prospects of the IPO.

ICICI Direct: Subscribe

Zomato is yet to turn profitable. However, this new-age digital platform offers strong growth potential, which at present is evolving on the back of favourable macroeconomics, changing demographic profile, rising adoption of tech infrastructure. Hence, we recommend Subscribe to this IPO.

Choice Broking: Subscribe with Caution

Currently, the company is loss making. Also, there is no listed domestic peer having same line of business as the company. The company has certain positivities like asset light scalable business model, expanded target market post the pandemic, first mover advantage in food delivery business etc. But its operations in almost duopoly market may attract regulatory actions, which would be negative for the company, the brokerage said.

"We feel that this IPO is not for retail investor, but investors with higher risk appetite with long term investment horizon can apply. Thus we assign a "Subscribe with Caution" rating for the issue," it added.

Motilal Oswal: Subscribe

Zomato with a first mover advantage is placed in a sweet spot as the online food delivery market is at the cusp of evolution. However, the brokerage said that predicting the growth trajectory at this juncture is little tricky for next few years. Valuing such early stage businesses on plain vanilla financial matrix might not give the right picture and may look distorted. "Investors with high risk appetite can Subscribe for Listing Gains given fancy for unique and first of its kind listing in the food delivery business, ", the brokerage said.

Anand Rathi: Subscribe for short term.

"At the upper end of the IPO price band, the offer is valued at 29.9 times of its FY21 market-cap to sales. Going forward, industry delivery percentage to net-revenue stands at 5% and with the Zomato average order value of Rs. 400 (i.e. Rs 20 per delivery), the company is well poised and it is also placed at a sweet spot as the first mover advantage in the online food delivery market.

Additionally, given the strong network effects, increasing frequency of order, huge scope for growth in tier-II and tier-III cities and large addressable market, we recommend a Subscribe (Short Term) rating to the IPO," the brokerage said.

 Hem Securities: Subscribe

"With the company consistently gaining market share over the last four years to become the category leader in the food delivery space in  India in terms of GOV, we believe that going forward, funds deployment towards customer and user acquisition and retention, expanding delivery and technology infrastructure will increase  the growth prospects of company & make it candidate for long-term investment. However looking after higher valuation which company is demanding at present level, we recommend to "Subscribe" the issue for limited listing gain and high long-term gain," the brokerage said.

Jyoti Roy, DVP, Equity Strategist, Angel Broking said, "Strong participation by institutions in the anchor book bodes well for the IPO and we expect continous strong demand for the IPO from both institutional and retail investors alike. Given strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities, we believe that Zomato will command a premium to global peers and hence have a 'SUBSCRIBE' recommendation on the IPO."