India vs US listing: Zomato may be test case for start-ups waiting in wings

E-commerce icon Zomato has opted to list on domestic bourses, resisting the temptation to do so in the US, the most preferred venue for Silicon Valley-styled tech firms.
 
How the food-delivery company’s Rs 8,250-crore maiden offering is received will be a test case for other tech and start-ups waiting in the wings to go public, say market players.
 
Zomato, backed by China’s Ant Group, filed its offer document with the Securities and Exchange Board of India (Sebi) this week to raise Rs 7,500 crore in fresh capital — the third-most a domestic IPO has ever raised. The company’s IPO — the first major by an e-commerce firm in India — will hit the markets mostly during the third quarter of the year.
 
Zomato’s losses widened every year between FY18 and FY20 from Rs 107 crore to Rs 2,386 crore. However, the cash burn has helped the company grow its top line five times from Rs 466 crore to Rs 2,605 crore.
 
The IPO will be a litmus test on whether domestic investors have the patience and maturity to deal with loss-making tech companies.
 
“The US markets are not averse to loss-making companies. As a result, a lot of global companies opt to list there. Indian investors, typically, won’t pay the kind of valuation private equity investors or the US markets pay,” said Pranjal Srivastava, a capital markets professional. Investment ban­kers handling the Zomato IPO say their initial feedback from initial investors is encouraging and it will be a “blowout deal”.
 
“The kind of response we are getting is mind-blowing. The IPO will open up the market for domestic unicorns and start-ups in a big way,” said a banker to the issue requesting anonymity, citing the “silent period”. “If you look at investors in DoorDash and Grubhub (both listed on the NYSE), they are the same who invest in our domestic markets. So listing in the US doesn’t necessarily mean that you are getting access to more investors than what you have here. On the contrary, you are getting an additional pool here in the form of mutual funds, insurance companies, and retail investors. More importantly, listing in the home market is a big boost to the brand and creates a lot of excitement. You miss out on that if you opt to list in the US,” he said. Investment bankers say the recent listing of food delivery app Deliveroo in the UK is a cautionary tale.
 
Earlier this month, shares of the company plunged 25 per cent during their stock market debut in London, dealing a blow to the nation’s plan to attract more tech companies to list locally. Similarly, in March, shares of domestic online travel company Easy Trip Planners listed at a discount in Mumbai. Investment bankers say both these companies had unique issues that resulted in weak listings and one cannot extrapolate a broad trend that non-US venues are not suitable for tech listings. Mobile gaming firm Nazara Techn­ologies did well here. India remains an attractive listing destination. Domestic companies with businesses outside India or those who generate the bulk of their revenues come from abroad, may perhaps look at an outside listing,” said Ajay Saraf, executive director, ICICI Securities.