Zomato IPO – Can you afford not to invest in this IPO?

If you have ordered food online at any point of time in India, it is very unlikely that you have not heard of Zomato, or used it. Like most of ecommerce and digital players, Zomato has a long gestation so it is still making losses. But that is hardly the game when you invest in the Zomato IPO. Zomato is approaching the IPO market in India to raise Rs.9,375 crore from the retail and institutional investors. Out of this amount, Rs.9,000 crore will be the fresh issue portion and Rs.375 crore will be an exit route for Info Edge. 

Key terms of the IPO issue of Zomato

_{Data Source: IPO Filings}

The fresh funds worth Rs.9,000 crore will be allocated for the following purposes.

• Funding organic growth by expanding its scale and spread of operations to reach out to more digital customers across India.
• Funding inorganic growth via acquisitions and takeovers of smaller and niche players to catalyse growth in its core segment.

Also Check: Things to know about Zomato IPO

A quick look at the Zomato Financials

Here is a quick look at the financials of Zomato, and we have only captured key financial parameters of relevance to the Zomato IPO for the last 3 fiscal years.

Investment Perspective for Zomato IPO

That is the bottom line. Should you invest in the Zomato IPO or should you give it a pass. At the outset, this is not a company that you can measure on traditional parameters. This is a business that requires a lot of front-ending of costs and back-ending of revenue related benefits. Here are some parameters that would help you take a decision.

1. The food delivery business is largely based on the network effect. More options, means more customers and more customers means more gross order value (GOV). When there are more customers, more restaurants sign on and that is how the network effect forms a virtuous cycle. Zomato has surely perfected this virtuous cycle.
2. While this is an industry that is very dynamic, the network outreach, brand of Zomato and the size of the Indian digital market mean that there are no immediate top line threats for the company and that is the good news.
3. The unit economics of Zomato has been constantly improving as its promotion expenses have come down from 88% of total income in 2019 to 25% of total income in 2021. As a result, the contribution profit as a share of GOV has been positive in each of the four quarters of FY21.

These are the points you must keep in mind when you take a final call on investing in the Zomato IPO.

Watch a detailed video on Zomato IPO: