... to debut on stock market today
On Friday, Zomato will become India’s first unicorn to debut on the stock market, marking a historic moment for the domestic capital market.
According to the initial schedule, Zomato’s listing was to take place on Tuesday. However, investment banks managed to complete the share allotment and listing related formalities ahead of the deadline. Under the Securities and Exchange Board of India’s (Sebi’s) framework, the timeline between initial public offering (IPO) closing and listing has to be six working days. Zomato’s IPO closed on July 16.
The stock is expected to do well if the huge demand generated in its IPO is anything to go by. Its public offering had seen nearly 40 times more demand than shares on offer and garnered bids worth over ~2 trillion—among the highest for domestic IPOS.
Market players said given the stellar response the grey market premium for Zomato’s shares have shot up from 15 per cent during the IPO to 30 per cent now. Based on grey market activity, the stock is expected to list around ~100 per share. The online food delivery company has fixed the issue price at ~76 per share, which will value the company at nearly ~60,000 crore.
Through the IPO, Zomato has raised ~9,000 crore in fresh capital. The issue proceeds will be used to fund organic and inorganic growth. After the IPO, Zomato will have cash of ~15,000 crore on its balance sheet, which the company says will give it a long runaway to pursue growth.
Between FY18 and FY20 Zomato’s losses widened from ~107 crore to ~2,386 crore, but the cash burn has helped the company grow its top line five times from ~466 crore to ~2,605 crore.
Given the lack of a profitability track record and uncertainty around when the company would turn a profit, some investors had given Zomato’s IPO a miss. Most brokerages, however, had advised their clients to subscribe to the IPO.
At ~76 per share, Zomato is valued at 29.9 times its FY21 sales. Going forward, industry delivery percentage to net-revenue stands at 5 per cent and with the Zomato average order value of ~400 (~20 per delivery) the company is well poised and it is also placed at a sweet spot as the first mover advantage in the online food delivery market. Additionally, given the strong network effects, increasing frequency of order, huge scope for growth in tier-ii and tier-iii cities and large addressable market, we recommend a ‘subscribe’ (short term) rating to the IPO, Anand Rathi had said in an IPO note.