Zomato Raises INR 4,200 Cr From 186 Anchor Investors In Pre-IPO Round

Food delivery giant Zomato has raised INR 4,196 Cr from 186 anchor investors ahead of the opening of its much-anticipated initial public offering (IPO), which opened for subscriptions earlier today (July 14, 2021).

As of 10:30 AM on day 1 of the IPO subscription window, retail individual investors (RIIs) had subscribed to the issue 0.49 times, while qualified Institutional Buyers (QIBs) subscribed 0.00 times, non-institutional investors subscribed 0.01 times and employee reserved portion was subscribed 0.01 times. The total issue was subscribed 0.09 times in the first 90 minutes of subscription.

The company informed the stock exchanges that it allotted 55.22 crore equity shares to anchor investors for Rs 76 per equity share. As per Zomato, the fresh funds raised through the anchor investors are almost 45% of the total issue size in the IPO. New World Fund, Tiger Global Investment Fund, Fidelity Fund, Baillie Gifford Pacific Fund, Morgan Stanley Investment Fund, Canada Pension Plan Investment Fund, the government of Singapore, Kotak Flexicap Fund are among the investors allotted more than 2% of the anchor book.

Further, a total of 18.41 crore shares were allotted to 19 Indian mutual funds such as SBI, Axis, Aditya Birla, Kotak, Mirea, Motilal, UTI, Nippon India, HDFC, IIFL, Sundaram, Tata, and Principal, among others.

One of the key concerns for market observers is the valuation sought by Zomato through its public offering. The company is targetting a valuation north of INR 60,000 Cr at the higher end of the issue price. This is a revenue multiple of 27x of its FY21 revenue of INR 1,994 Cr, which was 25% lower than FY20. But at the same time, the company’s losses also narrowed from INR 2,363 crore in FY20 to INR 812 crore in FY21.

So Zomato is being seen as a pricey option. Other public companies in the US and other markets trade in the range of 3-19x times the revenue. But analysts have remained optimistic, particularly given the demand and the market conditions that are favourable for tech and internet economy companies.

A note on the Zomato IPO by YES Securities Institutional Equities said, “We see a lot of excitement around the Zomato IPO given it’s the first large consumer tech company getting listed. Key players in the food tech industry like Zomato and Swiggy and have been able to create multiple competitive advantages like last‐mile delivery infrastructure, customer data, strong brand and convenience/choice driving network effect. While the metros and Tier 1 opportunity has been well captured, there is enough potential in the Tier 2,3,4 cities. We expect better trends in customer adoption and ordering frequency given efforts in changing health perceptions on food ordering, while demographics remain favorable.”

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