Zomato IPO Subscribed 38 Times, Generates Demand Worth Over Rs 2 Trillion

Food delivery start-up Zomato’s initial public offering (IPO), the first by an Indian unicorn, drew bids worth Rs 2 trillion as it was subscribed more than 38 times on Friday.

Zomato received bids for 27.5 billion shares against the 719 million on offer. Nearly three-fourths of the bids came from institutional investors, with the qualified institutional buyer (QIB) portion garnering 52 times subscription. Investment bankers said several investors didn’t get adequate allotment in the anchor book and the demand spilled over into the IPO.

The high net-worth individual (HNI) portion was subscribed nearly 33 times, and the retail portion by over seven times. The employee portion of the IPO remained undersubscribed at 0.6 times.

"There’s no doubt that the success of the Zomato IPO and the filing of DRHP (draft red herring prospectus) by other consumer tech titans like Paytm are watershed moments for the overall start-up ecosystem and depicts the maturity of the Indian stock markets. It’s definitely a shot in the arm for all start-ups, whether unicorns or early-stage,” said Ankur Bansal, co-founder and director, BlackSoil.

Paytm, Nykaa, Policybazaar, and MobiKwik, among others, are waiting in the wings to launch their IPOs.

"The success of this IPO will encourage other unicorns to tap the Indian capital markets. This will allow Indian investors to have access to such tech unicorns. It's a bit early to tell about the full impact of the IPO. The performance of the stock and the company over time will influence such IPOs," said Darius Pandole, managing director & CEO, JM Financial Private Equity.

Zomato's IPO had the market divided, with some investors deciding to give it a miss, given its lack of profitability track record. Brokerages recommended clients with a high-risk appetite to subscribe to the IPO.

Zomato’s losses widened between FY18 and FY20 from Rs 107 crore to Rs 2,386 crore. However, the cash burn has helped the company grow its top line five times from Rs 466 crore to Rs 2,605 crore.

“The company has certain positives like asset-light scalable business model, expanded target market post the pandemic, first-mover advantage in food delivery business. But its operations are generating heavy losses, albeit some improvements in FY21,” Choice Broking said in a note.

The price band for the IPO was Rs 72-76 per share. Zomato's IPO comprised Rs 9,000 crore of fresh fundraise and Rs 375 crore secondary share sale by Info Edge. At the top-end of the price band, the company will be valued at nearly Rs 60,000 crore. The company plans to utilise the net proceeds from the IPO towards funding organic and inorganic growth initiatives. After the IPO, Zomato will have cash of Rs 15,000 crore on its balance sheet, which the company says will give it a long runaway to pursue growth.

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