Finlatics | Investment Banking Experience Program – Project 4

Zomato: The unexpected IPO success

Zomato is an Indian multinational restaurant aggregator and food delivery company founded by
Deepinder Goyal, Pankaj Chaddah, and Gunjan Patidar in 2008. Zomato provides information, menus
and user-reviews of restaurants as well as food delivery options from partner restaurants in select cities.
Initially, it was named as Foodiebay but in 2010, it was renamed as Zomato. It provides not only
information related to nearby restaurants but also provides facilities such as online ordering, table
reservations and management. As of 31st Dec, 2020, Zomato Limited had its presence in 526 cities in
India and 23 countries across the globe.

Positive Return or a Negative Return?

The Rs 9,375 crore initial public offering (IPO) of this restaurant discovery and online food delivery
platform Zomato opened on Wednesday, July 14, 2021. It had a price band of Rs 72-76 per share.
Zomato aimed to raise Rs 9,375 crore through the IPO which comprised a fresh issue of equity shares
worth Rs 9,000 crore and an offer for sale (OFS) worth Rs 375 crore by existing Private Equity investor
Info Edge (India). The Zomato IPO had 75 per cent reserved for qualified institutional buyers (QIBs) and
15 per cent reserved for non-institutional investors (NIIs). The remaining 10 per cent of the issue was
available for retail investors.

Before heading into the IPO, Zomato raised over Rs 4,196 crore (Rs 41,96,51,86,380) from 186 anchor PE
investors in lieu of 55,21,73,505 equity shares at Rs 76 each. The anchor investors include the likes of
Tiger Global Investment Fund, Blackrock, Fidelity, JPMorgan, Morgan Stanley, T Rowe Price, Canada
Pension Plan Investment Board, Government of Singapore, SBI Mutual Fund, Axis Mutual Fund, Kotak
Mutual Fund, UTI Mutual Fund, Motilal Oswal AMC, HDFC Mutual Fund, ICICI Prudential Mutual Fund,
Tata Mutual Fund, Goldman Sachs India, Abu Dhabi Investment Authority, Franklin Templeton, HSBC
Asset Management (India) among others.

It raised Rs 4,196.52 crore ($562.3 million) from 186 anchor investors by allotting a little over 55.2 crore
shares at the upper end of the price band. Anchor investors, also known as cornerstone investors,
accept a one-month lock-in for a sizeable allocation of shares. Their participation highlights investors’
confidence in an IPO and sets a benchmark for the investor community at large. US-based asset
manager Capital Group emerged as the largest anchor that subscribed to 3.91% of the aggregate portion
for Rs 164 crore. Financial investors Tiger Global Management, Bailley Glifford Pacific Fund, and Morgan
Stanley Investment Funds invested over Rs 100 crore each.

Zomato shares made a strong stock market debut on closing the initial day of trade at Rs 126 per share
on the NSE. Zomato’s stock price was up 66 per cent or Rs 50 from IPO price of Rs 76. On July
23, Zomato listed on the Indian stock exchanges at more than 50% premium to its issue price of Rs 76.
Hence, a positive return.

Valuation
Zomato’s 2019-20 revenue had jumped over two-fold to $394 million (around Rs 2,960 crore) from the
previous fiscal year, while its earnings before interest, taxes, depreciation and amortization (EBITDA)
GRAISY BISWAL | FINLATICS - IBEP | PROJECT 4 1
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). Over FY18-21, Zomato’s revenue grew at a CAGR of 62 percent.

Despite showing up at the stock markets with a loss-making prospect, Zomato is expected to become
the largest IPO of the year in India with a post-money valuation of $8.9 billion. That’s a surge of 49
percent since it closed its previous funding round at a valuation of $5.4 billion.

Will PE fund continue to hold shares?

Since the beginning of the year, Zomato shuffled its cap table with multiple funding rounds to make
itself IPO-ready, but perhaps the most significant step in that direction was when the company managed
to execute secondary transactions to help China’s Ant Group partially dilute its stake. On January 21,
coinciding with a report on Ant group selling its shares in Zomato, the BSE Sensex, India's key equity
benchmark, hit 50,000 points. That rally has continued over the past six months, with the index closing
at 52,975.8 points on July 23. Club all of this with global liquidity, low interest rates, huge IPOs in the US
led by the tech pack and aided by instruments like special purpose acquisition companies, there couldn’t
have been a better time to list for Zomato. Within a few months, US-based investment funds such as
Tiger Global, Kora, Dragoneer and Fidelity, among others, doubled down with more cash as Zomato
focused on bringing in new types of backers.

This IPO has been a 100% primary offering. The amount will be raised without any investor exiting or
selling their shares in the company. Hence, the PE funds continue to hold Zomato shares with a view of
Zomato becoming a 50$ Billion company soon.

GRAISY BISWAL | FINLATICS - IBEP | PROJECT 4 2