Zomato IPO: Should investors build an appetite for foodtech listings?

Angel Broking said if Indian investors look beyond the immediate warning signs, there is a silver lining on the horizon

Zomato IPO: Should investors build an appetite for foodtech listings?
The IPO of Zomato is remarkable as it would be the first listing of an internet-based startup.

At the time when online food ordering platform Zomato filed preliminary papers with the market regulator SEBI to raise Rs 8,250 crore through an initial share sale, the other global players like London-based Deliveroo and Zomato’s American counterpart DoorDash have disappointed investors with their tepid performance post listing in the recent past.

Performance of global players post IPO

Amazon-backed food delivery app Deliveroo suffered one of the worst debuts as its shares fell by 26% when the company hit the markets at the end of March. At present, shares of the company traded at 268p (Rs 275.53) against the issue price of 390p (Rs 400.95) apiece.

On the other hand, DoorDash listed at $182 in December last year, up 78% against the issue price of $102. However, shares of the company have fallen over 21% to $143.17 since listing.

What to expect from Zomato?

A widening gap between revenue and spending is a glaring black spot in the company’s draft red herring prospectus (DGRP). According to the filing, the company spends more than it earns, and the gap is growing over the last few years. Although Zomato had seen a significant rise in daily delivery volume amid the pandemic, it ended up in loss during the nine months of FY 21 that ended on December 31.

It posted a loss of Rs 106.91 crore, Rs 1,010.23 crore, Rs 2385.60 crore and Rs 682.19 crore in the financial years 2018, 2019 and 2020, and in the nine months ended December 31, 2020, respectively. “We expect our costs to increase over time and our losses will continue given significant investments expected towards growing our business,” Zomato said in DRHP.

However, Angel Broking said if Indian investors look beyond the immediate warning signs, there is a silver lining on the horizon. “After the short pause between April and June, Zomato quickly bounced back and reported massive growth in gross order value (GOV). Between September and December, GOV rose to Rs 2,981 crore, which is the all-time highest in the history of the restaurant aggregator. Zomato reported a 40% year-on-year growth in December 2020. It clocked a revenue of $394 million during the pandemic ravaged year, rising two-fold from the previous year,” Angel Broking said.

Price band and issue date
At present, there is no confirmation on the Zomato IPO date or Zomato IPO price band. The information will likely come once the company gets approval from the market regulator.

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