Though experts say that food aggregator Zomato's IPO is expensive at a price band of Rs 72 to Rs 76, it has managed to generate much interest in the market. This is for the first time a food aggregator and an Indian start-up is going public, and this is a company that directly benefited from the pandemic. It is also a time when market sentiments are high as the market has been flooded with money from international and domestic investors, and the risk appetite too is high. Hence, there are enough reasons to believe that the IPO will do well.
The generation of more funds for Zomato will also enable more restaurants to move to cloud kitchen concept. Interestingly, Zomato’s IPO offer size of Rs 9,375 crore is an increase from the earlier Rs 8,250 crore announced in April when it had filed the draft documents with market regulator SEBI.
It has been observed that the second wave of COVID-19 has a reduced impact on businesses compared to the first wave. For the restaurants across cities, the lockdowns have been a major setback. However, companies like Zomato have helped them generate some demand and revenue. Hence, experts see the expansion plans of Zomato through the IPO as a good idea.
“This IPO will help Zomato deepen its relationship with the restaurants and expand into many new cities. As consumers are increasingly adapting to digitisation, the food delivery business will also see further growth. The pandemic situation saw restaurants shut down for the walk-in crowds, but restaurant aggregators such as Zomato and Swiggy enabled them to carry out their business and help them sustain in this phase. This collaboration helped in strengthening their ties with the restaurants, with more restaurants having moved to a purely 'delivery only' concept,” pointed out Aditya Narayan Mishra, director and CEO of CIEL HR Services.
According to Mishra, infusion of funds for companies such as Zomato will enable more restaurants to move to the cloud kitchen concept. “Additional funds will also help Zomato further develop its technology, expand to more Tier II and III cities in India and make it accessible to more restaurant owners to partner with them to do the last mile delivery. This also means creation of more jobs in the delivery space, and we see a lot of headroom for growth for the pan India staffing players in this space,” added Mishra.
This IPO is also special for Zomato because among the Indian start-ups, Zomato would be the first one looking to go public. “Foodtech has been among few sectors that have benefited from the COVID-19 pandemic as people have shifted to online ordering of food and food items instead of offline purchases. Timing too has been apt for Zomato to plan its listing as market sentiments are high. IPOs offer companies the capital to pursue expansion and growth that fuels job opportunities,” remarked Ajoy Thomas, business head (Retail, E-Commerce, Logistics and Transportation), TeamLease Services.
Experts also believe that the recent times have seen a lot of activity in the food delivery space and that may draw added interest from the investors. “The food delivery business has seen a spate of consolidation owing to merger and acquisition activity, with the result that there is a stable duopoly with a significant upside potential to the franchise, especially when the economy is coming out of pandemic-induced slowdown. Given these material facts, there is a likelihood of significant interest in the issuance,” pointed out Alok Shende of Mumbai-based Ascentius Consulting.