Shares offered by food delivery company Zomato’s in its maiden offering sold like hot cakes. The 719-million share sale saw 38 times more bids at 27.5 billion. The IPO—first by an Indian unicorn—generated demand worth more than Rs 2 trillion—among the highest for domestic IPOs.
Nearly three-fourth of the bids came from institutional investors, with the so-called qualified institutional buyers (QIB) portion garnering 52 times subscription. Investment bankers said several investors didn’t get adequate allotment in the anchor book and the demand spilled over into the IPO.
The high networth individual (HNI) portion was subscribed nearly 33 times and the retail portion was subscribed over 7 times and applications of close to 3.2 million. The employee portion of the IPO remained undersubscribed at 62 per cent.
The enthusiastic response to the IPO is seen as a thumbs up to Indian startup ecosystem and an endorsement of the domestic capital market.
"There’s no doubt that the success of Zomato IPO and filing of DRHP by other blue blooded consumer tech internet titans like Paytm is a watershed moment for overall startup ecosystem and depicts the maturity of Indian stock markets. Definitely a shot in the arm for all startups whether unicorns or at early stage,” said Ankur Bansal, Co-founder and Director, BlackSoil.
Several other startups such as Paytm, Nykaa, Policybazaar and Mobikwik are waiting in the wings to list.
"The success of this IPO will encourage other unicorns to tap the Indian capital markets; this will allow Indian investors to have access to such tech unicorns. It's a bit early to tell about the full impact of the IPO. The performance of the stock and the company over time will influence such IPOs," said Darius Pandole, managing director & CEO, JM Financial Private Equity.
Zomato's IPO had the market divided with some investors deciding to give the IPO a wide berth given its lack of profitability track record. Brokerages recommended clients with a high-risk appetite to subscribe to the IPO.
Zomato’s losses have widened between FY18 and FY20 from Rs 107 crore to Rs 2,386 crore. However, the cash burn has helped the company grow its topline five times from Rs 466 crore to Rs 2,605 crore.
“The company has certain positives like asset-light scalable business model, expanded target market post the pandemic, first-mover advantage in food delivery business. But its operations are generating heavy losses, albeit some improvements in FY21," Choice Broking had said in a note.
The price band for the IPO was Rs 72-76 per share. Zomato's IPO comprised Rs 9,000 crore of fresh fundraise and Rs 375 crore secondary share sale by Info Edge. At the top-end of the price band, the company will be valued at nearly Rs 60,000 crore. The company plans to utilise the net proceeds from the IPO towards funding organic and inorganic growth initiatives. After the IPO, Zomato will have cash of Rs 15,000 crore on its balance sheet, which the company says will give it a long runaway to pursue growth.
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