Zomato IPO: Here’s what grey market premium is signalling

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The much-awaited initial public offer (IPO) of Zomato is going to hit the primary market on July 14. The online food ordering platform has fixed a price band of Rs 72 to 76 per share for the public offer, which will conclude on July 16. According to the market observers, Zomato is trading at a premium of around Rs 14 in the grey market. In simple words, it means that the stock is available at Rs 90 in the grey market.

About the IPO

The total IPO size is Rs 9,375 crore, comprising a fresh issue of equity shares worth Rs 9,000 crore and an offer-for-sale to the tune of Rs 375 crore by Info Edge (India) Ltd, Zomato said.

Objective of the offer

Going by the IPO papers, proceeds from the fresh issue would be used towards funding organic and inorganic growth initiatives and general corporate purposes.

Valuation

According to reports, Zomato’s valuation post-IPO on a fully-diluted basis will be Rs 64,365 crore, far more than the other listed companies in the food segment such as Jubilant FoodWorks (market capitalisation of Rs 41,006 crore) and Burger King India (Rs 6,627 crore). The online food delivery segment has seen significant growth in the last few years with Zomato and Swiggy competing head-on to grab market share.

Report card

Zomato’s FY20 revenue had jumped over two-fold to $394 million (around Rs 2,960 crore) from the previous fiscal, while its earnings before interest, taxes, depreciation and amortisation (EBITDA) loss was around Rs 2,200 crore. In February, Zomato had raised $250 million (over Rs 1,800 crore) in funding from Tiger Global, Kora and others, valuing the online food ordering platform at $5.4 billion (around Rs 40,000 crore).

Book running lead managers

Kotak Mahindra Capital Company, Morgan Stanley India Company Pvt Ltd and Credit Suisse Securities (India) Pvt Ltd are the global coordinators and book running lead managers to the issue. BofA Securities India Ltd and Citigroup Global Markets India Pvt Ltd have been appointed as merchant bankers to the public issue.

Grey market premium

Abhay Doshi, founder, Unlisted Arena, told Money9 that Zomato is trading at a premium of Rs 13.40-14 in the grey market.

Should you subscribe?

Brokerage Ventura Securities has a ‘Subscribe’ rating on the issue. “With 1.2 billion smartphone users by FY2030 and having access to globally lowest-cost data packs, we forecast online food delivery user numbers to scale to 170-190 mn (14.2-14.3% CAGR, 14-16% internet penetration). Triggers for this rapid growth are rapid urbanisation with increasing nuclear families and busy lifestyle with both husband and wife being part of the working population,” the brokerage said. It also believes that the company may report a profit of Rs 227.60 crore in FY23 and Rs 479.10 crore in FY24. Zomato has reported a loss of Rs 2304 crore, 816 crore and Rs 577 crore in FY20, FY21 and FY22, respectively.