Zomato is set to deliver India's largest technology listing after it upsized its IPO to Rs93.8bn (US$1.26bn), as investors seek to gain exposure to the country's burgeoning e-commerce market.
The strong appetite for the offering is not a surprise as Zomato is one of the country's dominant food delivery companies alongside Swiggy. It is present in 526 Indian cities and had 350,000 active restaurant listings at the end of 2020, with an average of 10.7 million monthly customers placing 33.6 million food orders per month in the year to March 2020, according to the prospectus.
The sector has settled down after a frenzy of activity between 2013 and 2016 when more than 400 venture capital-funded food delivery apps launched, according to a research report by ICICI Securities.
“Companies like Zomato are category leaders in an oligopoly," said V Jayasankar, head of ECM at Kotak Investment Banking. "High market share, explosive growth, encouraging unit economics, etc are driving high demand from investors as such companies will compound returns over a long period of time.”
The primary tranche of the Zomato IPO has been upsized to Rs90bn from Rs75bn. Initially the company had envisaged a pre-IPO placement tranche of up to Rs15bn, that would have been deducted from the Rs75bn, but it has decided instead to add that amount to the public offering, effectively raising the IPO target by Rs30bn.
The secondary tranche has been lowered to Rs3.75bn from Rs7.5bn as high expectations for the listing prompted vendor Info Edge India to sell fewer shares.
The positive feedback has allowed Zomato to push up its valuation considerably.
The top of the Rs72–Rs76 price range represents a market capitalisation of around US$8.7bn, near the top of the company's US$6bn–$9bn target and far above the US$5.4bn valuation Zomato achieved when it last raised equity in February.
In terms of EV/sales, the top of the range implies a multiple of 18 for the financial year to March 2022. Larger global peers Meituan and Doordash trade at 11.6 times and 17.6 times respectively for the 2021 calendar year.
“The valuations reflect the under-penetrated online food market, Zomato’s leadership, multiple monetisation models and the novelty of an Indian internet listing,” a banker with knowledge of the transaction said.
Online service provider Info Edge is the largest shareholder in Zomato with an 18.55% stake. Alipay Singapore (8.33%), Antfin Singapore (8.2%), Uber Technologies (9.13%), Temasek-owned MacRitchie Investments (3.68%) and Sequoia Capital India (1.86%) are also investors.
More tech IPOs to come
Investors will soon have their pick of Indian internet IPOs.
In the works are domestic IPOs from Paytm (Rs218bn), Nykaa (US$500m), and PolicyBazaar (Rs40bn) that are likely to be launched as early as the fourth quarter. Paytm’s planned IPO would be India's largest-ever float.
More immediately, online automobile marketplace CarTrade Tech plans to launch an IPO of up to Rs20bn at the end of July.
“There is a spotlight on India, with the up and coming new economy plays," said Alex Abagian, co-head of Asia Pacific ECM at Morgan Stanley. "These companies, some of which are Covid-19 beneficiaries, have grown quickly and are expected to attract interest globally. Some people look at these like the first wave of unicorns coming out from China tech a few years ago and are keen to get exposure.”
Bankers said a successful listing of Zomato could encourage more technology companies to list in India, rather than wait for changes in regulations that would permit an overseas listing. The government said last year it would allow direct listings by Indian companies abroad, nearly 18 months after the regulator first proposed the idea, but it is yet to clarify the tax and foreign exchange implications so it may be some time before overseas IPOs materialise.
Zomato’s anchor books open on July 13 and the rest of the offer on July 14–16. The shares will list on July 27.
Zomato posted revenue of Rs27.4bn for the fiscal year to March 2020, almost doubling from Rs14bn in 2019, with its loss for the period widening to Rs23.9bn from Rs10bn. For the nine months to December 31, it posted total revenue of Rs13.7bn and a loss of Rs6.8bn.
The company will use the IPO proceeds to expand the business.
Credit Suisse, Kotak and Morgan Stanley are global coordinators, and bookrunners with Bank of America and Citigroup.