It's was only a few days ago on the 8th of June, when Zomato announced they would be opening up to an Initial Public Offering, or an IPO, and created a huge amount of noise in the markets. Ever since then, it has been a time of celebration and rejoices for the company and potential investors. This article will take a look at some of the specifics of the IPO and the objectives, with a bit of insight on how the process works.
An IPO is a process of offering the shares of a private corporation to the public, in the form of the issuance of new stock, on the primary market. This allows the company to raise capital from the investors, as well as the transition from a private company when opening it up. What this also means for the investors is that they get the opportunity to contribute capital to the company's shareholders' equity. There are usually a fixed number of shares that are given during this particular period, which are decided based on company valuation and other metrics, in line with regulations from the national body, in this case, the Securities and Exchanges Board of India (SEBI).
The timing of the IPO couldn't be better, with the online food delivery market seeing a massive boom due to the pandemic! Zomato has enjoyed a couple of resounding months of financial success, with the economies of scale playing out for them, and reducing losses substantially. Being a very competitive market at this point with the presence of Swiggy, and branded food outlets like McDonald's and Dominos having their own services, it has certainly not been easy for Zomato to get the market share that they would have expected, but they have made a positive impact in the segment. A lot of firms that have worked on the analysis, such as Motilal Oswal Financial Services and Ventura Securities have been rating it as a stock to subscribe for listing gains!
This is touted to be the biggest IPO since that of the SBI Cards and Payments Services worth Rs 10,341 crore, which was issued in March 2020, just before the COVID-19 pandemic struck. This shows a very high promise for investors and for the market in general, as it clearly underlines the fact that companies have been doing relatively better, and the public reactions show that markets and investors are receptive to the IPO. The issuance is said to be around the range of Rs 9,375 Crore, which is the first and biggest of the IPO's being offered among Indian online food aggregators, and a first among Indian Unicorn startups (Companies that have reached a valuation of $1 billion) . It is said that the expected valuation of Zomato will be over $9 billion!
Coming to the specifics, the public issuance is said to hit Dalal Street on the 14th of July and is said to have a price band of Rs 72-76 per share, around Rs 10 lesser than the current trading price on the gray market of Rs 86. 25 as of Monday, slightly lesser than the traded price of Rs 92-96 on the following day the IPO was announced, which indicated a strong demand from investors. The subscriptions are said to close on the 16th of July, which gives potential investors a solid two days to analyze and invest. The issuance of fresh stocks would amount to Rs 9,000 crore, with an offer for sale of up to Rs 375 crore by the current shareholders.
Kotak Mahindra Capital Company, Morgan Stanley India, and Credit Suisse Securities (India) are the global coordinators and book running lead managers to the issuing process. This means that they are highly responsible for the marketing of the IPO, and also manage and determine the pricing, compliance and are the major parties responsible for the process and its success also.
The quota for the retail investors has been fixed at 10% of the net offer, while the Qualified Institutional Buyer (QIB) quota is set at 75%, and that of non-institutional investors ( NII's) has been set at 15%, while 65 lakh equity shares have also been reserved and offered to those employees under an employee quota, to those who are eligible. NII's and retail investors are those investors that do not invest on someone else's behalf, but are managing their own money, and the debt/equity is brought through a bank or a broker usually. Because of the lesser purchasing power, NII's usually have to pay higher fees on the trade. Institutional Buyers however are the bigger parties, that buy in bulk. These are along the lines of mutual funds, money managers, hedge funds, and some massive private equity investors. These parties have a much bigger influence on the market.
With Zomato's current valuation being over Rs 60,000 crore ( Before IPO), which is in fact greater than the valuation of all listed hospitality chains operating in the country(Including the Taj and Oberoi), people are expecting the IPO to be a massive success and a huge growth curve for Zomato from here. This is amplified by the multiple rumors circulating on various investors and their strategies, like that of state-owned Life Insurance Corp. of India (LIC) weighing in a bid for shares. With all these rumors and all other market indicators, the IPO seems to be highly interesting, and highly important for Zomato too!
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