Info Edge's early investment in Zomato set to deliver sweet returns

According to the DRHP filed by Zomato as part of its initial public offering plan, Info Edge currently owns 1.244 billion shares at an average cost of Rs 1.16 each

Info Edge, the Delhi-based internet services firm that put a mere Rs 60 lakh as its first investment in Zomato in 2010, is sitting on 77x returns from its total equity investment of Rs 144.31 crore.
 
According to the draft red herring prospectus (DRHP) filed by food-delivery firm Zomato as part of its initial public offering (IPO) plan, Info Edge currently owns 1.244 billion shares at an average cost of Rs 1.16 each.
 
These investments were done between August 2010 and February 2015. The holding includes shares allotted as bonus and on conversion of preference shares since then.
 
Zomato is raising Rs 7,500 crore through the IPO. This is being done through a fresh issue of shares, which will lead to a 12.5 per cent equity dilution, assuming a valuation of Rs 60,000 crore.
 
Pre-IPO, Info Edge holds 18.55 per cent in Zomato, which will be valued at Rs 11,130 crore.
 
It is selling shares worth Rs 750 crore in the IPO, or 1.25 per cent.
 
After this dilution and the IPO, Info Edge will continue to hold 15.14 per cent in Zomato. At an IPO valuation of Rs 60,000 crore, this stake will be valued at Rs 9,084 crore.
 
In the DRHP, where the company for the first time shared its financial numbers and growth, referring to research firm RedSeer, Zomato said it had consistently gained market share over the past four years to become the category leader in the food delivery space in India in terms gross order value (GOV) from October 1, 2020, to March 31, 2021.
 
It has seen rapid growth in food delivery in India with orders increasing by 13.2 times from 30.6 million in 2017-18 to 403.1 million in 2019-20 and GOV growing 8.4 times from Rs 1,334.14 crore to Rs 11,220.90 crore during this period.
 
Another aspect is the surge in Zomato’s cash and cash equivalents. Assuming that food delivery is competitive and is characterised by low entry barriers, shifting customers, and competition with global players like Amazon, having enough cash on its book should prove helpful.
 
For the nine months ended December 2020, Zomato had total cash and cash equivalents of Rs 4,967 crore. This has grown significantly compared to the last three financial years (see table).
 
Add to this the company had raised Rs 1,800 crore of funds early this year from Tiger Global, Kora, and others. This brings its cash to around Rs 6,767 crore.
 
If the IPO is successful, the company will add Rs 7,500 crore to its kitty, taking the total to over Rs 14,000 crore.

REAPING DIVIDEND

• First investment was Rs 60 lakh
• Firm has invested a cumulative Rs 144.31 crore, considering its holding of 1.244 billion shares at an average cost of Rs 1.16 apiece. Info Edge’s FY20 annual report pegs its investment in Zomato at Rs 152.20 crore
• Reports peg Zomato’s IPO valuation at Rs 60,000 crore ($8 billion)
• Info Edge currently holds 18.55 per cent stake valued at Rs 11,130 crore
• Info Edge selling shares worth Rs 750 crore through an offer for sale
• Zomato also raising Rs 7,500 crore through IPO via fresh issue of shares entailing dilution of about 12.5%
• After the IPO, Info Edge will continue to hold 15.14% stake; this will be worth Rs 9,084 crore at IPO valuation 
• Key assumption: Zomato’s IPO valuation at ~60,000 crore Source: Media reports, DRHP