The upcoming initial public providing (IPO) by India’s initial on the internet meals delivery organization Zomato — erstwhile Foodiebay.com and one of India’s most effective net stories in the previous decade — will be more than just a big listing occasion for the young Indian startup ecosystem. Valued at $5.4 billion — larger than about the $5-billion valuation of its arch-rival Swiggy — Zomato would most probably turn sentiments of investors and startups towards the neighborhood ecosystem of capital raising and exits if it pulls off a effective IPO. The 12-year-old startup, backed by Info Edge, Tiger Global, Ant Financial, and so forth., and present in 24 nations, is aiming to raise Rs 8,250 crore ($1.1 billion), according to the draft red herring prospectus filed with the Securities and Exchange Board of India (SEBI) on Wednesday. So, what all is riding on a effective Zomato IPO?
Driving Sentiments
The occasion would be a “very, very, very big development for the startup ecosystem so far as despite having a good regulatory regime, many startups were not tapping into Indian capital markets which is highly liquid. Whatever money you can raise outside India, you can raise in India because the same investors are investing in India. The market rewards growth and the fear that without profit they will not be recognised, is unfounded. This will be a blockbuster as Info Edge has already demonstrated how markets reward growth,” Television Mohandas Pai, Chairman, Manipal Global Education told TheSpuzz Online.
Zomato didn’t reply to the request for comments for this story.
The Zomato IPO will be amongst a handful of startups domiciled in India like Policybazaar, Nykaa, Delhivery, MobiKwik, and so forth., arranging to list in the coming months. A effective listing is also probably to pump up a quantity of other net-initial or net-only startups to opt for listing to raise additional capital even as effective listings IndiaMart, and Infibeam in the current previous have sent positive signals with respect to India-focused investors’ appetite for net stocks. So far, the quantity raised by Zomato stood at $2.1 billion, as per Crunchbase, and had accomplished the unicorn status back in 2015-16.
“This IPO in some ways will be very defining. Startups have not been thinking of IPO as a real option. Zomato’s would be a sort of first mainstream startup IPO followed by seven-eight startups looking to go public. Even if half of them are able to list successfully, then going for IPO will become a mainstream option for Indian startups. But if they fail, it will also set a trend for startups not wanting to go for IPO. So, it is a big defining moment for the startup world,” Abhishek Goyal, Co-founder, Tracxn told TheSpuzz Online.
A effective IPO would also matter a lot for lakhs of micro and modest restaurants listed on Zomato. According to the Wednesday filing, the organization had 161,637 active delivery partners and 350,174 active restaurant listings like 132,769 restaurants that actively delivered orders. Zomato disclosed $183.6 million in income for the period April-December 2020 even though losses stood at $91.8 million through the period. Importantly, the organization noted that it had a “history” of net losses and anticipated enhanced costs ahead.
“It will be a very big step forward for SMEs in the restaurant sector as well since Zomato is an integral part of the sector. Moreover, during Covid, food delivery has been the means for survival for the food industry and Zomato has been one of the pioneers in this space. As partners, we are happy for this IPO but when it comes to restaurants and aggregators, it is a love-hate relationship. Aggregators are very important but at the same time we need to find the right balance of working as partners with companies like Zomato which I think is a work in progress. I am confident it will be a blockbuster IPO,” Sagar Daryani, Co-founder and CEO, Wow! Momo told TheSpuzz Online.
Restaurants in the previous had scuffled with Zomato more than the latter’s Gold package in 2019 that according to restaurants had impacted their sales. The organization and restaurants had been at loggerheads once more earlier this month more than the order rejection or cancellation policy of the organization. Nonetheless, if Zomato’s IPO succeeds, lakhs of these restaurants are also anticipated to advantage. “They are raising $1.1 billion capital which is a small amount of money out of which 40-50 per cent will be pre-sold. So, IPO will be small maybe around Rs 2k-3k crore. If IPO is oversubscribed 40-50 times, then it means there is a great unmet demand,” added Pai.
Moreover, the initial lot of startups going public are probably to command a premium worth as expectations from net organizations have been larger and investors would be prepared to experiment a bit even though consequently, it may well support towards the general response that startups get. “Their performance will determine if the excitement was worth it and it will set the path for next tech IPOs. People have been expecting tech companies to grow a lot after witnessing the growth of IndiaMart and Naukri.com which proved that tech companies can continue to grow consistently. So, the market expectation is high. Historically tech companies in the US have usually outperformed the rest and the same will be expected to happen in India as well,” added Goyal.
Listing through Covid
Timing also has been apt for Zomato to strategy its listing as industry sentiments are higher. Nifty has been hovering close to 15,000 even though Sensex has been rallying to after once more breach the 50,000-mark. When industry multiples are higher, investors are open to investing more, and demand for smaller sized organizations is considerable. The tech IPOs would have been considerably tougher to execute two years back in contrast to now. Moreover, foodtech has been amongst handful of sectors that have benefitted from the Covid pandemic as persons have shifted to on the internet ordering of meals and meals products alternatively of offline purchases. “Public markets are doing well and there is bullishness. It is a good time to list,” Utkarsh Sinha, Managing Director, Bexley Advisors told TheSpuzz Online.
“If companies are involved with customers’ life, they will make a blockbuster IPO. Food is something which has a very emotional connect with people,” added Daryani. Most importantly, the IPO will increase the self-confidence of investors — each basic partners and restricted partners as India has been notoriously identified for becoming unable to return sufficient of investors’ funds to retain their self-confidence due to lack of big exits.
VC exits had declined 70 per cent to $1.3 billion in 2020 from $4.4 billion in 2019, according to India Venture Capital Report 2021 by Bain & Company and IVCA. Muted exits had been driven by the influence of the pandemic on companies, potentially decreasing their valuations and therefore producing it an unfavourable time for investors to money in on their investments. Sector-smart, one-third of exits had been reported in edtech segment even though about 20 per cent came from foodtech. However, the exit momentum is anticipated to strengthen more than the next one to two years as most of the leading VC funds’ portfolio is but to attain maturity. The notable exits in 2020 incorporated Byju’s acquisition of WhiteHat Jr. with about $300 million exit worth and about $220 million in the secondary sale at Swiggy that gave exit to Elevation, Accel, Norwest Partners, RB Investments, and Bessemer. According to Zomato’s filing, its early investor Info Edge will sell its stake worth Rs 750 crore in the IPO.
“Zomato’s IPO will be the litmus test for investor exits and could pave the way for unicorn listings if it goes well. Investors will be watching keenly both to see if the IPO is oversubscribed and whether it pops and maintains its value post trading commences. Zomato’s listing will give exits to funds of various vintages and boost confidence in the Indian VC landscape, which should help not just the Zomato investors when raising their next funds, but others too when they hit the road,” mentioned Sinha.
Lastly, a effective listing in India is probably to trigger more net startups to discover neighborhood listings alternatively of listing in the US or Singapore or shifting base for a somewhat a lot easier regulatory atmosphere. “IT services companies like TCS, Wipro, Infosys, HCL had a majority of their businesses outside India but they are based in India. So Zomato is breaking this flawed thinking of shifting abroad to raise more money and better valuation,” added Pai.