Food delivery company Zomato’s Rs93.8bn (US$1.3bn) IPO was India’s first jumbo domestic offering from the consumer technology sector and paved the way for other high-profile listings.
Zomato’s successful listing marked the coming of age of the Indian technology sector and showed that investors would buy shares in loss-making but high-growth companies.
The deal drew huge investor interest, priced at a high valuation and shares traded up strongly, enabling big tech listings from Nykaa, PB Fintech and Paytm to follow.
The food delivery company had suffered a hit to its revenue during the pandemic, and government restrictions on fresh investments by Chinese investors in Indian companies last year prevented Ant Group from adding to its existing investment.
As a result, Zomato decided to raise funds from the public market, opting for a local listing since its customer base is in India.
Typically, it takes up to six months from filing to launch an IPO in India, but Zomato filed in April and launched in July, in one of the country’s quickest listings.
The company emphasised its unique position in the Indian food delivery sector and convinced investors to look beyond traditional valuation methods used for profitable companies.
Positive investor feedback encouraged Zomato to launch a larger-than-expected IPO. Primary shares for Rs90bn and Rs3.75bn of secondary shares were offered in a Rs72–Rs76 range. The primary tranche was upsized from Rs75bn while the secondary tranche was lowered from Rs7.5bn, as expectations of a hot secondary market prompted the largest shareholder to sell fewer shares than originally planned.
The IPO was priced at the top of the range at an implied market capitalisation of around US$8.7bn. That was near the top of the US$6bn–$9bn range targeted by the company, and well above its US$5.4bn valuation when it raised pre-IPO funding in February 2021.
The issue price implied an EV/sales multiple of 18 for the financial year ending March 2022, compared with 11.6 times and 17.6 times respectively for peers Meituan and DoorDash for the 2021 calendar year.
The book was fully subscribed on the first day, helped by China’s crackdown on its technology sector which pushed some global investors to look at India instead.
When books closed, the IPO was covered 38.25 times, with the institutional tranche 51.79 times subscribed.
Foreign investors bought 65% of the 552m-share anchor tranche, which attracted 186 investors. This included some first-time anchor investors in an Indian IPO like Tiger Global Investments and Altimeter.
Investors who placed their faith in Zomato’s growth prospects were rewarded with an 80% share gain by the end of 2021.
Credit Suisse, Kotak and Morgan Stanley were global coordinators, and bookrunners with Bank of America and Citigroup.
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