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Zomato IPO: The company’s business, risks, and COVID-19 impact

Food delivery and aggregator Zomato last week filed for an initial public offering with the SEBI; Zomato’s largest shareholder InfoEdge will be divesting a part of its stake for Rs 750 crore through the offer. The company plans to raise Rs 8,250 crore — Rs 7,500 crore of fresh issue and Rs 750 crore of an offer for sale, per the draft red herring prospectus. Of the total fresh issue, the company can raise Rs 1,500 crore by undertaking a pre-IPO placement, while the remaining would be through the IPO route.

The offer for sale is by Info Edge, which is an early investor in Zomato and currently the largest shareholder; it will offer shares worth Rs 750 crore. Info Edge’s ownership will be locked for one year after the IPO as per SEBI rules.

Zomato’s business

Zomato was founded in 2008 as a restaurant discovery website and is now one of the main players in the food delivery market along with Swiggy and new entrant Amazon. The company now earns most of its revenue primarily through food deliveries, it charges restaurants a commission for deliveries and collects delivery fees from customers.

Source: Zomato’s DRHP

99.3% of food delivery orders came via mobile app as of December 2020. The company has 160,000 delivery partners who fulfilled 94.9% of orders along with over 130,000 active restaurants for food delivery. The company earns revenue from charging commission to restaurants and collects food delivery charges from the customer. During the last month of the FY19, FY20, and December 2020, active Food Delivery Restaurants were 33,192, over 94,000, 143,000 and 132,000, and average monthly transacting users were 5.6 million, 10.7 million and 5.8 million, respectively in FY19, FY20, and nine months ended December 31, 2020.

Average Order Value (AOV) is a function of province and number of people the food is being ordered for; they are higher for premium restaurants and has increased steadily over the last seven quarters. It shot up from Rs 286.9 in Q4FY20 to Rs 378.4 in Q1FY21, once the COVID-19 lockdowns and movement restrictions kicked in. Orders have grown from 30 million in FY18 to 400 million in FY20, Gross Order Volume has grown from Rs 1,334 crore in FY18 to Rs 11,220 crore in FY20. 

Source: DRHP

As of December 2020, Zomato had over 350,000 active restaurants listed on the platform, which generated 157 million units of CGC. Zomato monetises dining out through advertisement sales for which restaurants pay the platform for increased visibility; over 8,000 partners paid for ad sales in FY20. Zomato does not monetise table reservations or dining out payments.

Apart from dining out and food delivery, Zomato has two other areas of operations:

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  1. Hyperpure is Zomato’s B2B offering for restaurants, where it sources ingredients and raw materials such as fruits, grains, and vegetables on a large scale and supplies them to restaurants. As of December 2020, it supplied to 6,000 restaurants across six cities; it also helps increase engagement with restaurants and retain them. It is operated under the Zomato Internet Pvt. Ltd. subsidiary. 
  2. Zomato Pro: Paid membership program which unlocks flat percentage discounts for customers at select restaurants across food delivery and dining out services. 1.4 million Pro members and 25,350 Pro restaurant partners in India. 

Zomato is also engaged in events including concerts, food festivals, pop-up restaurant events, artists performances, etc. 

Source: DRHP

For food delivery, Hyperpure, and Zomato Pro, the company enters into standard contracts with each partners. Delivery partners enter into independent contracts with Zomato 

Uber Eats Acquisition 

Zomato had acquired UberEats’ operations in India for an aggregate consideration of Rs 13,759 million. The purchase was discharged through issuance of 76,376 Class 1-2 CCCPS as an issue price of Rs 180,153 each to Uber India. 

Impact of COVID-19

The first quarter of FY21 saw the lowest GOV in two financial years, but recovered with GOV growth of 91.6% and 42.3% in the second and third quarters. Q3 (Oct-Dec 2020) saw the highest GOV in any quarter until December 2020. 

As of nine months ended December 31, 2020 (FY21), Zomato reported a total income of Rs 1367.6 crore, of which Rs 1301.3 crore was operational revenue coming primarily from food delivery. Dining out services were severely impacted by COVID-19 and has not fully recovered. Zomato Pro subscriptions have reduced significantly. Hyperpure was least impacted due to the high demand for organised grocery due to supply chain disruptions during the pandemic. 

Total income increased by 96% in FY20 to over Rs 2,700 crore from around Rs 1400 crore in FY19, primarily due to an increase in operational revenue from food delivery. In FY20, total orders placed in India shot up by 111% to 403 million as of March 2020. This was driven by new customers, increased engagement with existing customers, increase in cities with operations, and increase in active food delivery restaurants in FY20. Increase in commissions rates charged to restaurants, which is revised annually, also helped marginally. Compared to FY20, total 190 million orders were placed in FY19. 

Laws and regulations pertaining to Zomato

The IT Rules 2021 require intermediaries to now knowingly host information prohibited under the rules and to disable information once they become aware of it, in addition to due diligence requirements. 

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Consumer Protection Act, 2019, includes the food and e-commerce industry. It recognises the FSSAI definition of “food”; e-commerce has been defined as buying and selling of goods and services over electronic network. The Act aims to cover entities that are involved in the process of buying and selling of goods and services online. Rendering of services free of charge under the contract of personal service is not covered under the definition of service. 

The Code on Social Security, 2020 has subsumed several social security laws and introduces security nets for gig and platform workers; provides for mandatory registration of the workers for life, disability, health and maternity, old age benefits under schemes framed under the law. It also provides that such schemes may be partly funded by contributions from platforms such as Zomato; it will be enforced when notified by the central government. 


Along with India, Zomato has operations in 23 foreign countries including in Middle East (Dubai), Indonesia (no active business operations), Sri Lanka (is under closure), Portugal (no active business operations), Chile (no active business operations), Ireland, New Zealand, Vietnam (no active business operations), Canada (no active business operations), UK (no active business operations), Malaysia (no active business operations). However the company generates 90% of its revenue from India and will focus only on the Indian market. 


InfoEdge holds 18.55% of equity share capital; Alipay and Antfin together hold 16.53% of equity share. 

Source: DRHP

Operational revenue

  • 9 months ended FY21: Rs 1,301 crore 
  • FY20: Rs 2,742 crore 
  • FY19: Rs 1,397 crore 
  • FY18: Rs 487 crore 

How proceeds will be used 

40% of the proposed deployment will be out into funding organic growth initiatives, including customer and user acquisition. This will include acquisition and retention costs (including discounts) and marketing and branding (such as general advertising, marketing, and branding).

The proceeds will also be invested in delivery and technology infrastructure technology. Deployments of funds will depend on multiple factors including timing, nature, size, and number of acquisitions undertaken, as well as general factors affecting out results of operations, financial condition, and access to capital.

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