Zomato IPO fully subscribed on Day 1, attracts bids worth Rs 5,700 cr

Market players say marquee names in anchor book have been a big confidence booster; young investors are showing a lot of interest in the IPO of a brand they relate with

India’s first unicorn IPO saw more demand than the shares on offer on Wednesday, the first day of the issue. As per data provided by the stock exchanges, Zomato’s maiden offering has attracted bids for 756 million shares, worth Rs 5,700 crore, as against 719.2 million on offer in the IPO, which closes on Friday.

Bulk of the bids on the first day have come from retail and institutional investors. The retail portion has seen oversubscription to the tune of 2.7 times, while the so-called qualified institutional buyer (QIB) segment was subscribed 98 per cent. The high networth individual (HNI) and employee portion were subscribed 13 per cent and 18 per cent respectively. To be sure, bulk of the bids in any IPO come on the last day of the issue.

On Tuesday, Zomato had allotted shares 552 million shares worth Rs 4,195 crore to anchor investors. About 186 investors, which included a host of domestic as well as foreign names, were allotted shares under the anchor book.

Market players said the marquee names in the anchor book have been a big confidence booster. Besides, young investors are showing a lot of interest in the IPO of a brand they relate with, they added.

"Looking at the retail applications, it is clear that many young investors have applied for the IPO. If there is an IPO of a company whose service you are using every other day, you prefer to go by the familiarity of the product or service than by numbers,” said Ambareesh Baliga, markets analyst.

Broking officials said the industry has seen millions of accounts being opened by youngsters, many of whom are showing an inclination to invests in Zomato’s IPO given the buzz it has created on social media.

However, experts like Baliga said many might be investing without looking at the financials.

“Rational investors differentiate between using and investing. Zomato gives me good service and the best discount, but I am concerned about losses they are incurring as an investor,” he said.

Zomato’s losses have 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 topline by five times from Rs 466 crore to Rs 2,605 crore.

"Although the company's plan of growth is dynamic, it needs to be reflected in the financials too. Young investors must financially educate themselves before investing no matter how much hype IPOs have," said Prateek Singh, Founder and CEO of LearnApp.com.

Zomato being the first IPO by a domestic ecommerce major is being looked at as a test case. Experts said they response to its IPO and post-listing performance will have a bearing on other companies such as Paytm, Nykaa, Policybazaar and Mobikwik, who are looking to go public soon.

As Zomato doesn’t meet the profitability track record laid down by Sebi, the portion reserved for retail investors is just 10 per cent as against 35 per cent for IPOs by profitable companies.

Most brokerages are recommended clients with high risk appetite to subscribe to the IPO as there is lack of clarity on when the company will turn profitable.

The price band for the IPO is Rs 72-76 per share. Zomato's IPO comprises 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.