Zomato IPO: What Investors should know
Indian food delivery start-up Zomato has proposed to raise $1.1 billion from an initial public offering (IPO). Zomato acquired Uber’s local food delivery business last year; the company is backed by Uber Technologies and Jack Ma’s Ant Group.
Zomato filed to go public on Wednesday, in what would make it India’s biggest IPO so far this year. Here is what investors should know.
What is Zomato?
Zomato was founded in New Delhi in 2008. The company has built a name for itself as one of India’s most successful startups, with a team of more than 5,000 employees that reaches more than 10,000 cities in two dozen countries, from Sri Lanka to Slovakia to South Africa.
The firm made international headlines last January for acquiring Uber Eats in India in exchange for handing the US tech company an almost 10% stake in its business. Users, restaurants, and delivery workers on Uber’s platform at the time were shifted over to Zomato’s app.
Zomato plans to sell shares worth 75 billion rupees ($1 billion) in the primary market. The largest shareholder, Info Edge, will sell up to 7.5 billion rupees (about $100.6 million) worth of equity. Zomato is also considering privately raising (pre-IPO) up to 15 billion rupees ($201.1 million) before it hits the market, which could reduce the amount it plans to raise publicly, it added.
Zomato will invest a large share of the IPO proceeds in customer and user acquisition, delivery infrastructure, and technology infrastructure.
Previously, Zomato raised $250 million at a $5.4 billion valuation from investors like Tiger Global, Kora Management, Fidelity, Dragoneer, and Bow Wave. Subsequently, the company raised $660 million from new investors, including Luxor Capital, Baillie Gifford & Co., and Mirae Asset, in another funding round.
Who owns Zomato?
Zomato was last valued at $5.4 billion, according to CB Insights. Info Edge and Uber held an 18.55% and 9.13% stake in Zomato, respectively. Ant Group’s affiliates, Alipay Singapore Holding and Antfin Singapore Holding held an 8.33% and 8.2% stake, respectively.
Uber sold India’s Uber Eats business to Zomato for a 9.99% stake in Zomato last year. Ant has invested over $560 million in Zomato. Ant’s investment worth $100 million was delayed by the new Indian government’s restrictions on Chinese investment.
Why is the IPO important?
The listing is a major moment for India’s tech industry. Only a handful of Indian tech firms have held listings over the last two decades. And no tech startup worth more than $1 billion has gone public. Walmart-owned Flipkart is the only Indian tech unicorn to have been acquired at a valuation of more than $1 billion.
The IPO will also serve as another test for the closely watched global food delivery industry. Deliveroo’s IPO crashed in London last month despite great fanfare, becoming the city’s worst debut on record. Indian food services market is expected to reach $74 billion by 2024. Organized food service is expected to constitute 52% of the market.
Zomato and Swiggy each control around 50% of India’s food services market. Zomato continues to burn through cash due to competition from Swiggy and new threats such as Amazon which also launched its food delivery service in India last year.
Zomato has around 11 million active users in India, ordering 3.6 times a month. Zomato expects the user base to grow to 30 million by 2025. Zomato estimates the online penetration to expand to 16%. The online food delivery market is estimated to reach $12 billion by 2024 at a 43% CAGR.