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Zomato - Research Report

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85 views

Zomato - Research Report

Uploaded by

shuklashrey08
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Zomato - Research Report

About Zomato Limited

Incorporated in 2010, Zomato Limited is one of the leading online Food


Service platforms in terms of the value of food sold as of Dec 31, 2020. Its
B2C offerings include food delivery and dining-out services where customers
can search and discover restaurants, order food delivery, book a table, and
make payments for dining out at restaurants while under the B2B segment, it
generates revenue from Hyperpure (supply of high-quality ingredients and
kitchen products to restaurants) and Zomato Pro, customer loyalty program.

As of December 31, 2020, Zomato has established a strong footprint across 23


countries with 131,233 active food delivery restaurants, 161,637 active
delivery partners, and an average monthly food order of 10.7 million
customers.

SEBI’s Approval in accordance with Alternative Criteria

Zomato’s IPO, despite net losses, was permitted by SEBI due to the following
reasons:

1. 75% allotment should be through QIB route.

2. Issue should be entirely Book Built.

3. SEBI mandates comprehensive disclosures for loss-making companies to

inform potential investors about the risks, business model, market


opportunity, financials, and strategies for growth. This includes presenting
factors like EBITDA and Adjusted EBITDA (as Zomato does), detailed risk
factors, and clear information on how the raised funds will be used.
4. The present Eligibility Norms for an IPO of equity are summarized below:
 A company meeting the track record/profitability criteria can come with an issue
through fixed price or book-built route provided that the size of the issue is not
more than 5 times of its pre issue net worth.
 However, a company which is not fulfilling the track record-profitability criteria
or where the issue size is more than 5 times its pre-issue networth can make an
issue provided the same is through book building route with 60% of the issue to
be mandatorily subscribed by QIBs.

Key Facts

1. IPO Structure: The IPO consists of a fresh issue of shares totaling ₹90,000

million and an offer for sale by Info Edge of ₹3,750 million.


2. Fund Utilization: The IPO aims to raise funds for business growth,

expansion, and general corporate purposes.


3. Market Opportunity: The Indian food services market, valued at

approximately $65 billion in 2019, is expected to reach $110 billion by


2025. Despite India’s food consumption being around a quarter of the
GDP, restaurant food only accounts for about 8-9%, indicating significant
growth potential compared to other markets like the US and China.
4. Info Edge saw a remarkable 1,050x return on its initial ₹4.7 crore

investment in Zomato, with the stake now valued at around ₹15,000 crore.
This reflects the tremendous growth in Zomato's valuation since its early
funding rounds, showcasing Info Edge’s successful investment strategy in
tech-driven businesses.

EBITDA Vs Adjusted EBITDA

The Zomato RHP outlines both EBITDA and Adjusted EBITDA, explaining that
each serves different evaluative purposes:

EBITDA: This measure represents the operating profitability, calculated by


adjusting the restated loss to exclude other income, depreciation and
amortization, finance costs, tax expense, and exceptional items. EBITDA
provides insight into Zomato's core operational performance by removing the
effects of non-operational factors.

Adjusted EBITDA: Adjusted EBITDA further refines EBITDA by also excluding


share-based payment expenses. Zomato uses this non-GAAP measure to give
a clearer view of recurring business performance, isolating ongoing
operational trends from certain one-time expenses, thereby aiding in year-
over-year comparisons and core performance analysis.

During FY24, Zomato reported adjusted EBITDA of 1,527 crore in FY 24


standing at improved numbers of INR 372 crore in FY 23

Whereas, Considering the GAAP measure, EBITDA stood at 42 Crores as


compared to Adjusted EBITDA (Non-GAAP measure) of 372 crores during FY
24.

Allocation Guidelines for Qualified Institutional Buyers (QIBs) and Mutual


Funds

QIB Allocation: A minimum of 75% of the Net Offer Size must be allocated to
Qualified Institutional Buyers (QIBs).

Mutual Fund Allocation within QIBs: Up to 5% of the Net QIB Portion is


exclusively reserved for allocation to Mutual Funds.

Eligibility for Mutual Fund Portion: Mutual Funds that participate in the
Mutual Fund Portion are also eligible to receive allocations from the remaining
QIB Portion.

Unsubscribed Mutual Fund Portion: If any part of the Mutual Fund Portion
remains unsubscribed, it will be reallocated to the Net QIB Portion for
distribution among other QIBs.

Recommendation

Investing in Zomato is advisable for long-term growth-oriented portfolios. For


short-term investors, profitability uncertainty may warrant caution.

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