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Sunday, July 11, 2021
Costly but tasty
Zomato is one of the leading Food Services technology platforms in India in terms of value of food sold, as of March 31, 2021. During Fiscal 2021, 32.1 million average monthly users visited the company's platform in India. As of March 31, 2021, the company is present in 525 cities in India, with 389,932 active restaurant listings. The company's mobile application is the most downloaded food and drinks application in India in each of the last three years since 2019 on iOS App store and Google Play combined, as per App Annie's estimates.

The company is present in 23 countries. However, the company earns majority of its revenues from India which contributed 90.6% of its total revenues in FY2021 while United Arab Emirates and Rest of the World contributing 6.1% and 3.1% of the total revenues in FY2021 respectively. The company is closing down or selling off large part of its international operations and going to focus only on Indian market.

Zomato offers Food delivery, Dining Out, Hyper Pure and Zomato Pro.According to RedSeer, the company has consistently gained market share in its food delivery business over the last four years to become the category leader in the food delivery space in India in terms of gross order value from October 1, 2020, to March 31, 2021. The company has experienced rapid growth in food delivery in India with its orders increasing by 13.2 times from 30.6 million in Fiscal 2018 to403.1 million in FY 2020, however, it declined by 40.7% YoY in FY2021 to 238.9 million due to Covid pandemic. Gross order value grew by 8.4 times from Rs 1,334.14 crore in FY 2018 to Rs 11,220.90 crore in FY2020. It declined by 15.5% YoY to Rs 9,482.87 crore in FY2021.

In March 2021, the company had 1,48,384 active restaurant partners and had 1,69,802active delivery partners.On an average, 6.8 million customersordered food every month through the company's platform in India in Fiscal 2021 with an average monthly frequency of overthree times.In Fiscal 2021, 99.3% of the company's food delivery orders came through Zomato's mobile application.

The company's dining out services offer customers to search and discover restaurants, read and write customer generated reviews and view and upload photos, book a table and make payments while dining-out at restaurants. As of March 31, 2021, the company had 3,89,932active restaurant listings on its platform and in FY 2021, 61.8million units of customer generated content was generated in the company's platform, which makes the company, the largest food-focused restaurant listing andreviews platform.

The company's Hyperpure sources fresh, hygienic, quality ingredients and supplies directly from farmers, mills, producers and processors to supply to company's restaurant partners. In the month of March 2021, the company supplied to over 9,225 restaurant partners across six cities in India. Revenue from Hyperpure operations, was Rs 14.89 crore, Rs 107.59 crore and Rs 200.20 crore in FY2019, FY2020 and FY2021 respectively. This was the only segment which gained from Covid pandemic, while other segments degrew.

The company's Zomato Pro unlocks flat percentage discounts for the company's customers at select restaurant partners across both food delivery and dining-out offerings.The revenue from sale of its subscription product, Zomato Pro in India for FY 2019, 2020 and 2021 was Rs 56.20 crore, Rs 87.88 crore and Rs 57.51 crore respectively. As of March 31, 2021, the company had 1.5 million Pro Members and 25,443 Pro Restaurant Partners in India.

The company has acquired 14 companies since it was established in 2008. The acquisitions are in various sectors. The latest acquisition was a full-stack sports facilities provider and discovery start-up Fits in at an investment of around Rs 80 to 100 crore. Prior to this the company acquired Uber Eats India business at a total investment of around Rs 2,554 crore. With the acquisition of Uber Eats the company became market leader in food delivery business.

The company is founded by Mr Deepinder Goyal -MD & CEO, Mr Gunjan Patidar and Mr Pankaj Chaddah - COO.Mr Deepinder Goyal is a graduate from IIT Delhi with mathematics and computing. Post perusing his graduation he worked as a consultant at Bain & Company where he got the idea of Zomato. He started his entrepreneurial journey by leaving his job at Bain & Company and by starting his own food start-up Foodiebay in 2008, later it was renamed as Zomato in 2010.

Zomato is backed by Jack Ma's Ant Group. Ant group is the second largest shareholder (through Alipay 8.4% shareholding and Antifin 8.3% shareholding pre-IPO) in the company after Info Edge (18.7%). Apart from Ant group, the company is also backed by other investors including Temasek, Kora,Tiger Global and Sequoia Capital. Uber also has shareholding of 9.2% (pre-IPO) in Zomato, after Zomato acquired Uber Eats for a sum of Rs 2,485 crore in an all-stock deal.

The Offer and the Objects

The offer comprises a fresh issue of 1,18,42,10,526 equity shares at upper price band of Rs 76 and 1,25,00,00,000 equity shares at lower price band of Rs 72 aggregating up to Rs 9,000 crore by the company and an offer for sale by selling shareholders Info Edge (India) of up to 4,93,42,105 equity shares at the upper price band of Rs 76 and 5,20,83,333 equity sharesat the lower price band of Rs 72 aggregating to Rs 375 crore.

Info Edge (India) pre-issue shareholding was 18.7%, which shall decrease to 15.2% at the upper price band of Rs 76.

The company proposes to utilize the net proceeds of the fresh issue towards funding organic and inorganic growth of the company amounting Rs 6,725 crore and balance towards general corporate purposes. The organic and inorganic growth initiatives, includes creating delivery as well as technology infrastructure. Beyond this, the company would focus on marketing and promotions towards customer and user acquisition activities, which involves acquisition and retention cost as well as market and branding cost. The funds would also be used towards new acquisition.

The company has also signed a definitive agreement with grocery e-tailer Grofers to invest a sum of Rs 780 crore (subject to regulatory approval) for a 9% stake in the company. It is a financial investment, but Zomato plans to diversify to grocery e-tailing as it provides immense opportunities.


The Food delivery market is currently witnessing growth on account of the increasing access to high-speed internet facilities and the boosting sales of smart phones. This, in confluence with the growing working population and inflating income levels, is propelling the online food delivery market growth in India.Looking forward, IMARC Group expects the market to grow at a CAGR of 30.1% during 2021-2026.

The company is operating in food tech industry which is a duopoly between Zomato and Swiggy controlling over 80% of the market. Amazon also recently diversified into food delivery business.

According to RedSeer, the company's end-to-end food services approach makes it the most unique Food Services platform globally combining the offerings of platforms such as Yelp, DoorDash and OpenTable in a single mobile app.

The company has 389,932active restaurant listings across 525 cities in India, as of March 31, 2021. In addition to structured content in the application, the company also has customer generated content which consists of reviews, ratings and photos posted by customers on the company's platform. In Fiscal 2021, 12.7 million customers generated 61.8 million units of customer generated contenton its platform. During FY2021,68.0% of the company's new customers were acquired organically on account of focus on content.

The company's unique content strategy feeds into the transaction funnel and creates a strong flywheel effect as more content leads to more customers and more customers lead to richer content. More customers on the company's platform also increases the number of food orders for the restaurants on its platform in turn leading to more restaurants becoming available for food delivery in its platform. More restaurants on its platform, increases the choices available to customers leading to growth in customers.

Leveraging the Zomato's large fleet of delivery partners, restaurant partners can get their food delivered to customers reliably and quickly, without having to invest in their own delivery capabilities, driving incremental orders for their food and thereby increasing kitchen utilization and improving operational efficiencies. Customers can also order and pick-up the food themselves from the restaurants using the 'takeaway' feature on Zomato's platform. The company helps restaurant partners expand their reach beyond the physical limitations of their restaurants.

The company's brand is a strong consumer brand name and enjoys high recall, present across India in small as well as large cities. The company's offerings include both food delivery and dining-out, thereby giving it the ability to capture mind share of consumers for 'non-home cooked food'. Zomato's brand is synonymous with food and its customers associate it with everything to do with food. The company's delivery partners also carry Zomato branded gear including t-shirts, jackets, bags, and boxes, further enhancing the company's brand awareness on the streets.

As on March 31,2021, the company had cash balance of Rs 903.66 crore and liquid investments to the tune Rs 2205.25 crore. Further, of the total fresh issue of Rs 9,000.00 crore, Rs 6,725.00 crore will be utilised for funding organic and inorganic growth which includes creating delivery as well as technology infrastructure. Beyond this, the company would focus on marketing and promotions towards customer and user acquisition activities, which involves acquisition and retention cost as well as market and branding cost. The funds would also be used towards new acquisition.This will help company sustain growth.

The company has already made substantial investments in marketing and promotions to accelerate customer adoption of food deliveryin India and promote its brand. The company believes that all these investments have contributed towards category creation andresulted in customers coming back to its platform organically for repeat purchases. Further large investments in marketing and advertisement, especially for brand promotion may not be needed in future. The company's advertisement and sale promotion expenses as a percentage of incomewas as high as 88.43% in FY2019 which has reduced to 24.88% during FY2021. However investments in geographical expansion and customer acquisitions can continue.

Average order value increased from Rs 264.6 in Q1FY2020 to Rs 395.4 in Q4FY2021.

Total revenue per unit delivered increased from Rs 58.9/per unit in FY2020 to Rs 89.8/unit inFY2021. This was led by increase in commission and charges from Rs 43.6/ per unit in FY2020 to Rs 62.8/per unit in FY2021, delivery charges increase from Rs 15.3/per unit in FY2020 to Rs 27.0/per unit in FY2021. Total cost per unit delivered declined from Rs 89.4 in FY2020 to Rs 69.3/per unit in FY2021. Delivery cost declined from Rs 52/per unit in FY2020 to Rs 45.7/per unit in FY2021, discounts declined from Rs 21.7/per unit to 8.3/per unit in FY2021 and other variable cost declined from Rs 15.7/per unit in FY2020 to Rs 15.3/ per unit in FY2021.The company's per unit contribution stood at Rs 20.5 for FY2021 as against loss of Rs 30.5 in FY2020.


The company incurred loss of Rs 1,010.23, Rs 2,385.60 and Rs 816.43 crore FY2019, FY2020 and FY2021 respectively. Losses can continue in the foreseeable future in spite of improving unit economics due to continued investment in geographical expansion and customer acquisitions and investments in new businesses.

Food Services is a competitive market in India comprising food delivery players like Zomato and Swiggy, cloud kitchens like Rebel Foods and branded Food Services players (including quick service restaurants like Dominos, McDonalds and Pizza Hut).Food delivery players also compete with multiple other participants in the Food Services industry including restaurants which own and operate their own delivery fleets, traditional offline ordering channels, such as take-out offerings and phone-based ordering, local publications, and other media, both online and offline where restaurants place their advertisements to attract customers.The company will also face stiff competition from the new entrant in the food delivery business namely Amazon as it is a cash rich company which might gain market share at the expense of existing players through large cash burns.

Managing customer satisfaction largely depends on cooperation and commitment of restaurant and delivery partners and various external factors and the company may not have enough control over them.

Due to a massive demand for online orders, delivering food from a restaurant far away from the customer's place while maintaining the utmost quality becomes highly challenging for the delivery partners. The difference in the food that is served in the restaurant premises and the one being delivered to one's doorstep creates a significant loophole that food delivery companies would strive hard to overcome.

Apart from the customer base, food costs are also highly volatile. Several factors affect the prices in the food industry. Businesses dealing in food delivery often cannot track or keep up with market prices and struggle to find the right pricing strategy.

With the customers ordering through their smart phones and through food delivery apps, lot of sensitive data, including names, contact numbers, physical addresses, email addresses and credit card numbers, is transmitted and frequently stored, often across multiple networks and systems. All these bits of information are prone to unauthorized theft or access by hackers. This can lead to lot of bad publicity as also severe regulatory actions against the company.

The company has acquired 14 companies since it was established in 2008. The acquisitions are in various sectors. This has resulted in creation of large intangible goodwill assets. Goodwill assets as on March 31, 2021 stood at Rs 1,247.78 cr constituting 14.3% of the total assets. This will have to be amortised over various periods. So in spite of being asset light, amortisation expenses will remain heavy.

The National Restaurant Association of India (NRAI) has moved the Competition Commission of India (CCI), highlighting the anti-competitive issues with Zomato. The complaint includes bundling of services, data masking, exorbitant commissions, price-parity agreements, deep discounting, including forcing restaurant partners to give discounts to maintain an appropriate listing. NRAI and food aggregators like Zomato and Swiggy have been at loggerheads for over two years now. In 2019, NRAI had launched a logout movement against Zomato, claiming that one of its subscription programmes Zomato Gold enabled unsustainable deep discounting.

Restaurant industry body NRAI has also revived plans to launch a loyalty programme app within next two months to offer discounts and loyalty to counter aggregators like Zomato and Swiggy. NRAI is launching the app for the first time. The body is in the final stages of finalizing details with an established tech partner to whom the body is outsourcing the backend management and expects to launch the app by August-September. Consumers who use this app will not have to pay unlike loyalty apps such as Zomato Gold and the consumers will have the flexibility to encash loyalty points at any restaurant for the dine-ins.

The government's proposals to curb unfair competition from ecommerce apps/sites include blanket ban on flash sales, and a 'fallback liability', which can constrain growth of food service platforms also. The proposed fallback liability clause essentially makes the platform liable if a seller registered with such an entity fails to deliver the goods or services ordered by a consumer—due to multiple factors including negligent conduct.


For FY 2021, sales were down by 23.46% to Rs 1,993.79 crore primarily due to loss of business in the first few months of the financial year due to Covid-19 pandemic. Gross order value declined from Rs 11,220.9 crore in FY2020 to 9,482.87 crore in FY2021. Orders declined from 403.1 million in FY2020 to 238.9 million in FY2021. Monthly active users reduced from 41.5 million in FY2020 to 32.1 million in Fiscal 2021. Monthly transacting users decreased from 10.7 million users in FY2020 to 6.8 million in FY2021. The company is incurring losses at operating levels. Operating losses declined to Rs 467.17 crore as against Rs 2304.70 crore. Decline in operating losses was due to per unit contribution turning profitable. Also other expenses declined due to lower expenditure on selling and advertisement expenditure as the need for brand promotion reduced significantly. Other income decreased 9.69% to 124.64 crore, while interest cost fell 20.21% to Rs 10.08 crore and depreciation increased 63.52% to Rs 137.74 crore. Loss before tax decreased 65.83% to Rs 815.12 crore. Exceptional losses increased by 166.14% to Rs 324.77 crore. Tax expenses stood at 1.30 crore against nil in corresponding period. Net losses declined by 65.78% to Rs 816.43 crore.

At the higher price band of Rs 76, the offer is made at around 23.8 times pre-IPO EV/FY21 Sales, which appears to be very high. There is no comparable listed player in India. Listed industry peers of the company globally are Door Dash(United States), Delivery Hero (Europe), Just Eat Takeaway.com(Europe) and Meituan(China).Door Dash trades at 15.17 times its EV/Sales at the current market price of US$ 182.91, Delivery Hero trades at 11.51 times its EV/Sales at the current market price of Eur 119.3, Just Eat Takeaway.com.at 6.73 times EV/Sales at the current market price of US$ 18.42, Meituan at 13.12 times EV/Sales at the current market price of HKD 286.0. However, their bouquet of services and growth/competitive dynamics are different. For an investor in Indian market, Zomato will be the only choice till other players in this line get listed.

Those who invest in companies like Zomato should not bother about profits, cash flows and other traditional valuation measures as it may take several years for them to meet those criteria. These kinds of companies have penchant to take big risks involving large cash burns funded by equity dilutions.

Zomato is being sold at valuation, which do not seem to have any objective basis, but is based on the investors' fierce demand due to excessive liquidity and prevailing perception of potential scope of fast and sustained growth in the food delivery and adjacent spaces and Zomato' good execution track record and proven capability to capitalise on the growth opportunities. Post listing, its price on stock market will be entirely a function of how much and how long the company can enjoy the scarcity premium. Here it must be noted that the company will have large equity of Rs 785 crore (face value of Re 1) at the higher band and the entire equity will be floating stock, after the mandatory IPO related lock-in of one year gets over, as there is no fixed promoter.

Zomato: Issue Highlights
Fresh issue (in Rs crore)9000
Offer for sale (in Rs crore)375
Offer for sale (in number of shares)
- in Upper price band49342105
- in Lower price band52083333
Price Band (Rs)72-76
For Fresh Issue Offer size (in no of shares )
- in Upper price band1184210526
- in Lower price band1250000000
Pre issued capital (Rs crore)666.10
Post issue capital (Rs crore)
- in Upper price band784.52
- in Lower price band791.10
Pre issue promoter and Promoter Group shareholding (%)-
Post issue Promoter and Promoter Group shareholding
-On higher price band (%)-
-On lower price band (%)-
Bid Size (in No. of shares)-
Issue open date14/07/2021
Issue closed date16/07/2021
ListingBSE, NSE


Zomato: Consolidated Financials
1903 (12)2003 (12)2103 (12)
OPM (%)-170.94%-88.48%-23.43%
Other inc.85.13138.00124.64
Share of profit/loss from JV---
PBT Before EO-2210.43-2263.57-490.36
Exceptional items1199.92-122.029-324.766
PBT After EO-1010.51-2385.60-815.12
Total Tax--1.30
Minority Interest ---
Net Profit-1010.51-2385.60-816.43
EPS (Rs)---
Figures in Rs crore
Source: Capitaline Corporate Database

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