India food delivery player Zomato files for domestic IPO
Zomato, an India-based food services platform that raised more than $1.25 billion in private funding from the likes of Ant Group, Tiger Global Management, and Sequoia Capital India, is looking to raise up to INR82.5 billion ($1.11 billion) through a domestic IPO.
The company plans to sell INR75 billion in new shares, while existing investor Info Edge India – the holding company for local jobs portal Naukri – will exit a position worth INR7.5 billion, according to a prospectus. Separately, Zomato is considering a pre-IPO private placement of INR15 billion.
Info Edge, which confirmed its imminent partial exit in a separate filing, first backed in Zomato in 2010, two years after the company’s establishment. The investor participated in seven funding rounds through 2015, and although it has been gradually diluted over subsequent rounds, it remains the largest shareholder with 18.55%.
Ant Group, the financial services affiliate of China’s Alibaba Group, is second largest with 16.53%, followed by Uber on 9.13%, Sequoia on 7.29%, Temasek Holdings on 6.2%, and Tiger Global on 6%. No other investor has more than 5% apart from Deepinder Goyal, Zomato’s founder and CEO.
Uber has gained a 10% stake in early 2020 as part of a deal that saw Zomato acquire Uber Eats India. Delivery Hero is also an investor, having bought Zomato’s United Arab Emirates operation in 2019 and participated in a funding round for the Indian company around the same time.
Delivery Hero exited India in 2017, selling Foodpanda to ride-hailing operator Ola. Two years later, Ola pulled back from food delivery, leaving Zomato and Swiggy as the clear leaders in the space. Swiggy has raised more than $1.5 billion in private funding and counts Prosus Ventures, Coatue Management, DST Global, and Hillhouse Capital among its backers.
The Zomato platform allows consumers to search for restaurants, make delivery orders, book tables, pay for food while dining out at restaurants, and post reviews. Restaurant partners can use it for marketing, last-mile deliveries, and procurement. As of December 2020, the company was present in 526 cities with 350,174 active restaurant listings. It was also in 23 countries outside India.
During the 2020 financial year, Zomato had 41.5 million average monthly active users (MAUs). It is India’s largest food delivery player by gross order value (GOV). The company processed 403.1 million orders worth INR112.2 billion in 2020, up from 191 million and INR53.9 billion in 2019. These orders were fulfilled by 161.637 delivery partners on behalf of 131,233 active food delivery restaurants.
The COVID-19 impact on business was severe, with GOV falling to INR10.9 billion for April-June 2020, from INR26.8 billion in the previous quarter. However, it rebounded to INR29.8 billion in October-December.
Zomato also claims to be the number one online table reservations platform, with 12.2 million covers booked in 2020. On the procurement side, in December 2020 alone, it supplied over 6,000 restaurants across six cities.
Revenue for the 12 months ended March 2020 came to INR27.4 billion, up from INR13.9 billion a year earlier. Over the same period, the net loss widened from INR10.1 billion to INR23.6 billion. The company makes its money through commissions on delivery orders, advertising, and subscriptions to a paid membership program that offers dining discounts. There are 1.4 million members.
Zomato claims that the unit economics of its delivery business are improving. The profit contribution was INR22.9 billion between April and December 2020, versus an INR30.5 billion loss for the previous financial year. This was driven by rising commissions from restaurants and delivery fees paid by customers, while delivery costs and discounts declined.
The unit economics calculations exclude costs associated with marketing and branding. However, spending on advertising and promotions as a percentage of total income across the business fell from 48.8% in the 2020 financial year to 22.4% in April-December 2020.
Nevertheless, the company has warned that overall losses will likely increase over time given expected investment in growing the business in India and overseas.
The prospectus identifies four angel or pre-institutional rounds featuring Info Edge before Sequoia joined Info Edge in a Series A round in 2013. The most recent round is the Series K in February 2021, which saw Kora Management, Fidelity, Tiger Global, Bow Wave Capital Management, and Dragoneer Investment Group put in $250 million.
Other backers from earlier rounds include Vy Capital, Glade Brook Capital, Baillie Gifford, Shunwei Capital, and D1 Capital Partners.
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