Zomato’s mega IPO to boost valuation of foodtech firms

The blockbuster listing of online food delivery company Zomato is expected to set the stage for many food technology (foodtech) firms, including Swiggy, to follow suit. The stellar listing is expected to have a positive impact on their valuation if they plan to list or raise funds, said analysts and experts.

Zomato, the Gurugram-based company, is operating in a nascent industry. However, its ~9,375-crore maiden offering is now considered a test case for other foodtech start-ups planning to go public. Zomato’s initial public offering (IPO) drew bids worth ~2.1 trillion — it was subscribed 40x. On Friday, the stock ended with a gain of 66 per cent.

The company's market capitalisation had breached the ~1-trillion mark, pipping some big players like Tata Motors, Shree Cement, and Indian Oil Corporation (IOCL) at the post. The latest valuation is also about 55 per cent more than around ~64,500-crore value at the time of the IPO.

“From Swiggy’s perspective, one would imagine it would want Zomato’s stock to do well. This will only help it attract higher multiples in the followon rounds,” said Ankur Bansal, cofounder and director, at venture debt player Blacksoil.

Bansal said Zomato’s first-day listing performance is a result of many factors segued together from an investor perspective. These include scarcity premium of such assets in the listed space, huge liquidity, and stock market run-up. The other aspects include huge brand recall value for Zomato, as well as superior performance of international listed peers.

“The pandemic has helped such businesses thrive after stuttering initially,” said Bansal, adding, “It’s (Zomato listing) a vindication for private market valuation and will fire up the start-up space.”

Besides Swiggy, experts said other foodtech players expected to witness a positive impact on their valuations - if they plan to go public or raise private funds - include Rebel Foods, Dunzo, and Ola Foods.

This month, Zomato’s biggest competitor, Swiggy, closed a $1.25-billion fund-raise. This took the valuation of the Bengaluru-based start-up up by more than 50 per cent to $5.5 billion, from the earlier $3.6 billion.

Ankur Pahwa, partner and national leader, e-commerce and consumer internet at EY India, said Zomato closed up 65 per cent on its debut day of trading. “That positive sentiment will always rub off on other companies in similar sectors,” said Pahwa.

Madhur Singhal, managing partner and chief executive officer (CEO) at management consulting firm Praxis Global Alliance, said Zomato’s IPO debut has enhanced the confidence of the start-up fraternity.

“This shows the maturity of investors ploughing money into companies with potential,” said Singhal.

Akshaya Bhargava, founder of Bridgeweave, a Uk-based financial technology firm, said Zomato’s IPO has set the yardstick for other firms.

Vyom Shah, CEO and founder of Foodism, a start-up for food enthusiasts and home chefs, said Zomato’s IPO will have a huge impact on foodtech start-ups.

“Technology IPOS may indicate a coming-of-age for the Indian tech-start-up ecosystem,” he added.

Salman Waris, managing partner at technology law firm Techlegis Advocates and Solicitors, said food services is a $65-billion market opportunity in India and growing at 9 per cent per annum. It is likely to reach $110 billion by 2025. Within the food services market of $65 billion, online delivery forms a small subset at a market size of $4.2 billion (6-7 per cent). Analysts expect the food delivery market to be worth $12 billion by 2022.

Bansal said markets will closely watch Zomato’s execution in new growth areas and profitability metrics, which, in the long run, will help stabilise the valuation.

“All start-ups vying for IPOS having similar moats will definitely be able to hit the roadshow on a strong footing,” said Bansal.