Zomato's Rs 9,375-crore IPO to bring bonanza for Info Edge, Sequoia, Goyal

Zomato’s much-awaited initial public offering (IPO) has turned out to be a major winning bet for several private equity (PE) investors and early backers of the online food delivery company.

The existing shareholders of the company are set to make gains in the range of 50 per cent to 6,450 per cent on their investments as India’s first major e-commerce company launches its Rs 9,375-crore maiden offering next week.

Sanjeev Bikhchandani-led Info Edge — the biggest shareholder in the company with a 15.9 per cent stake on a post-listing basis — is sitting on the biggest gains. The average acquisition cost for Info Edge works out to just Rs 1.16 per share, according to the disclosure made in Zomato’s offer document. The absolute cost for Info Edge’s holding of 1.24 billion-odd shares works out to roughly Rs 144 crore.

At the top-end of the IPO price band of Rs 72-76 per share, its stake will be valued at  Rs 9,455 crore. Of this, the company, now famous for its winning bets in companies such as Zomato and Policybazaar — which too plans to get listed soon, will divest shares worth Rs 375 crore in the IPO, more than double of what it has poured into Zomato.

Info Edge, however, has been the earliest backer of Zomato, which started its business journey as a website for restaurant listings and reviews. It made the first investment of Rs 4.7 crore in the company in July 2010 and invested more in nearly half a dozen tranches until 2015 as Zomato transformed itself into a food delivery company.

After Info Edge, PE major Sequoia, which first invested in 2013, is set for the highest gains. The US-based venture capital firm, however, has sold its shares in Zomato on a number of occasions and will be left with a 5 per cent stake post listing, which will be valued at a little over Rs 3,000 crore.

Jack Ma-led Ant Group is set to make over 10-fold returns on its investment. The Chinese firm has pared its stake significantly in the past two years. In 2019, it held a 27.56 per cent stake in Zomato, which is now down to 14.1 per cent. The current holding is valued at Rs 8,430 crore based on the IPO pricing. Ant Group is set for more windfall gains as digital payments startup Paytm — another of its early investment — plans to file its offer document with the market regulator this month.

Other key investors in Zomato include Tiger Global, the Singapore government-backed Temasek, Vy Capital, and Glade Brook. The average acquisition cost for each couldn’t be ascertained. However, market experts said the returns have exceeded their internal targets.

Zomato’s IPO comes amid buoyancy in the secondary market which has sent the Sensex and Nifty soaring. The strong interest in Zomato has prompted the company to increase the offer size by 20 per cent — the maximum alteration permitted under Sebi rules — to Rs 9,000 crore.

Also, the IPO price band is 50 per cent higher than the price at which Zomato raised over Rs 1,800 crore from a clutch of investors, which included Kora Management, Fidelity, and Tiger in February this year.

Zomato’s founder and CEO Deepinder Goyal’s stake in the company will be valued at Rs 2,808 crore. The IPO will also bring windfall gains for many other employees as the ESOPs issued by the company are worth more than Rs 5,000 crore.

When quizzed about the surge in valuation over such a short period during a virtual press conference, the investment bankers handling Zomato’s share sale said the pricing was based on feedback from more than 300 investors from around the world.

Akshant Goyal, chief financial officer, Zomato said during the pandemic, Netflix and food delivery were the only entertainment options and the company had consistently improved margins over the last several quarters.

Following the IPO, Zomato’s cash and bank balance will swell to nearly Rs 15,000 crore. The company said its burn rate is down to less than Rs 400 crore a year, which will give it a long rope to pursue growth in the online food delivery space, which it said is underpenetrated at just 10 per cent.