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Zomato IPO | What's so interesting?

Today Zomato has launched their most talked about IPO, offering fresh issue of Rs 9,000 crore and sale of shares worth Rs 375 crore by existing investors, according to its red herring prospectus. The price band has been fixed at Rs 72-76 per share with a minimum bid of 195 shares.

The internet is already filled with lot of speculations and pieces of advice whether or not to go for it.

So why is it such a talk of the town?

Well, it is the first Unicorn to go public, not only this but it is also a loss-making company to do so.

Weird! if a company is doing so well and holds a promising future, why is it in losses?

Because it has to burn a lot of cash in order to acquire the customers by giving unbelievable discounts.

Equity strategist believes that Zomato will command a premium valuation in comparison to its global rivals owing to its strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities. In the global market, the company’s peers include DoorDash, Delivery Hero, Just takeaway, Meituan and Deliveroo.

Not only this, but Zomato also ventured into food supply chain and cloud kitchens through their brands Zomato Hyperpure and Zomato Kitchens making it even more interesting as the company is reinventing to stay relevant to the market.

Additionally, it has a huge advantage of having the access to gold mine of customer data just like Amazon.

While Amazon aggressively studies the performance of its best sellers and customer response and throws the exact product in the market listing it on priority, thereby slowly eliminating its own enlisted sellers. Zomato on the other hand, promises to never compete with its restaurant partners. Infact, they want to leverage the customer data in making cloud kitchens in strategic locations with selected restaurant brands to get a competitive advantage.

In current scenario, Zomato is enjoying a duopoly having only one competitor but Amazon has also entered the market last year with a pilot launch in select areas of Bangalore. Amazon is apparently charging far lower rates than Zomato and Swiggy and also throwing away huge discounts on every order. Though ICICI Securities expects Amazon to take time to establish competitive advantages such as network, customer reach and consumer behaviour insights whereas other investors believe that Amazon being a behemoth can be a daunting opponent.

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