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market | IST

How Zomato will use IPO proceeds, what are the risk factors: Here's a look inside Zomato's DRHP

Foodtech startup Zomato is looking to raise Rs 8,250 crore via an initial public offer and has filed a draft red herring prospectus (DRHP) with market regulator SEBI on Wednesday.

Foodtech startup Zomato is looking to raise Rs 8,250 crore via an initial public offer and has filed a draft red herring prospectus (DRHP) with market regulator SEBI on Wednesday.
The offer will comprise a fresh issue of equity shares aggregating up to Rs 7,500 crore and a Rs 750 crore offer for sale from investor Info Edge.
Here are some of the key highlights on Zomato's business, outlook, as well as plans for fundraising and capital deployment:
Pre-IPO placement likely
Zomato said in its DRHP that the company may, in consultation with the managers, consider a private placement of up to Rs 1,500 crore, prior to the filing of the Red Herring Prospectus with the RoC.
"The Pre-IPO Placement, if undertaken, will be at a price to be decided by our Company in consultation with the Managers. If the Pre-IPO Placement is undertaken, the minimum Offer size (comprising the Fresh Issue so reduced by the amount raised from the Pre-IPO Placement, and the Offer for Sale) shall constitute at least 10% of the post-Offer paid-up Equity Share capital of our Company," the company said.
How Zomato plans to Use IPO Proceeds
Zomato said it will utilise Rs 5,625 crore for funding organic and inorganic growth initiatives.
"We expect to utilize at least 40% of the proposed deployment towards funding organic growth initiatives," the company said.
The company's organic growth initiatives will comprise:
  • Customer and user acquisition: will entail investments in marketing and promotions through discounts and general advertising, marketing and branding initiatives on digital and offline platforms.
  • Delivery infrastructure
  • Technology infrastructure
  •  
    Inorganic growth:
    "We believe that we have benefited significantly from the acquisitions undertaken by us in the past. We will from time to time continue to seek attractive inorganic opportunities that we believe will fit well with our strategic business objectives and growth strategies," Zomato said.
    Zomato's Losses to Continue
    Zomato said that it expects costs to increase over time and losses will continue given significant investments expected towards growing the business.
    Here's a look at Zomato's losses over recent years:
    Losses for the year/period of
    FY18: Rs 1,069.16 million
    FY19: Rs 10,102.33 million
    FY20: Rs 23,856.01 million
    Nine months ended Dec 2020: Rs 6,821.99 million
    Here are some factors Zomato has listed that may affect their future results:
    • We may not be able to sustain our historical growth rates, and our historical performance may not be indicative of our future growth or financial results;
    • We have a history of net losses and we anticipate increased expenses in the future;
    • The COVID-19 pandemic, or a similar public health threat, has had and could impact our business, cash flows, financial condition and results of operations;
    • If we fail to retain our existing restaurant partners, customers or delivery partners or fail to add new restaurant partners, delivery partners or customers to our portfolio in a cost-effective manner, our revenue may decrease and our business may be adversely affected;
    • If we are unable to continue to provide services to our restaurant partners or to implement our strategy to enable more restaurants with more solutions, our business, cash flows and prospects may be materially and adversely affected;
    • Growth of our business will depend upon the strength of our brand, and any failure to maintain, protect and enhance our brand could limit our ability to retain or expand our customer base, which could materially and adversely affect our business, cash flows, financial condition and results of operations;
    • Unfavourable media coverage could harm our business, financial condition, cash flows and results of operations;
    • We face intense competition in food delivery and other businesses and if we are unable to compete effectively, our business, financial condition, cash flows and results of operations could be adversely affected;
    • If we do not continue to innovate and further develop our platform or our platform developments do not perform, or we are not able to keep pace with technological developments, we may not remain competitive and our business and results of operations could suffer; and
    • Failure to generate and maintain sufficient high-quality customer-generated content could negatively impact our business.