Zomato IPO launch: All you need to know

Zomato shares have made a stellar debut in the domestic market. Investors are willing to bet big on new-age technology companies which have the characteristics of a disruptive business model.

Earlier, on April 28, 2021, Food delivery platform Zomato filed it's Draft Red Herring Prospectus (DRHP) with the market regulator SEBI. According to the DRHP filed by Zomato, the company will offer equity shares aggregating up to Rs 8,250 crore. Of this, Rs 7,500 crore will be a fresh issue, while Rs 750 crore will be an offer for sale for its existing investor Info Edge. On 23nd July the shares of the food startup opened at ₹ 116, a premium of ₹ 53 per cent compared to the issue price of ₹ 76. At 10:05 am, Zomato shares were trading at the day's high of ₹ 134.70, up 77.63 per cent on the BSE and ₹ 135.60, up 77.57 per cent on the NSE.

The IPO of the online food delivery service provider is the second largest IPO after the ₹ 15,199.44 crore Coal India share sale way back in October 2010. It is also the first Indian mega startup to go public.

Here are few key financials and risks factory listed by the food delivery platform in its DRHP.

Zomato has a history of net losses from fiscal year FY18 to FY20 and even in the nine months ended December 31, 2020, it had a loss of Rs 682 crore. The company said it has a history of net losses and anticipates increased expenses in the future.

Source: Zomato DRHP

The food delivery company witnessed a good revenue growth in fiscal year 2019 and 2020. However, its nine-month data is on the lower side. In fact, the company said that its revenue may fall, and it may not be able to sustain historical growth rates and historical performance.

Zomato mentioned that its revenue may decrease, and the business may be unfavourably affected if it fails to retain existing restaurant partners, customers, or delivery partners or fails to add new restaurant partners, delivery partners, or customers to its portfolio in a cost-effective manner.

Net cash activities for the nine months ended December 31, 2020 was Rs 269 crore, cash flow in investing activities was Rs 4,222 crore, which included payment to acquire liquid mutual fund units, while cash flow from financing activities was Rs 4,574 crore.

Source: Zomato DRHP

COVID-19 has been ravaging businesses across globe. Similar public health threat could impact the business, cash flows, financial condition and results of operations. The company said its business, cash flows and prospects may be materially and adversely affected if it is unable to continue to provide services to its restaurant partners or to implement its strategy of enabling more restaurants.

Critical media coverage could also damage its business, financial condition, cash flows and results of operations," it said. It also noted that it faces "intense competition" in food delivery and other businesses and its business, financial condition, cash flows and results of operations could be adversely affected if the company is unable to compete effectively".

However, Zomato narrowed its losses to Rs 816.42 crore in FY21 from Rs 2,386 crore in FY20. It reported a Rs 1,010 crore loss for FY19.

In the IPO papers filed with markets regulator Sebi, Zomato said it expects costs to increase over time and "losses will continue, given the significant investments it expects to make to grow its business."