'Zomato's stellar IPO to have positive impact on foodtech firms' valuation'

Apart from Swiggy, Zomato's biggest competitor, Rebel Foods, Dunzo, Ola Foods will also be fancying their chances of a blockbuster listing or more private equity funding, say experts

The blockbuster listing of online food delivery company Zomato is expected to set the stage for many food technology (foodtech) firms, including Swiggy, to follow suit. The stellar listing is expected to have a positive impact on their valuations if they plan to list or raise funds, said analysts and experts.

Zomato, the Gurugram-based company, is operating in a nascent industry. However, its Rs 9,375-crore maiden offering is now considered a test case for other foodtech start-ups planning to go public.

Zomato’s initial public offering (IPO) drew bids worth Rs 2.1 trillion - it was subscribed 40x. On Friday, the stock ended with a gain of 66 per cent.

The company's market capitalisation had breached the Rs 1-trillion mark, pipping some big players like Tata Motors, Shree Cement, and Indian Oil Corporation (IOCL) at the post.

“From Swiggy’s perspective, one would imagine it would want Zomato's stock to do well. This will only help it attract higher multiples in the follow-on rounds,” said Ankur Bansal, co-founder and director, at venture debt player BlackSoil. 

Bansal said Zomato’s first-day listing performance is a result of many factors segued together from an investor perspective. These include scarcity premium of such assets in the listed space, huge liquidity, and stock market run-up. The other aspects include huge brand recall value for Zomato in the Indian context, as well as superior performance of international listed peers. 

“The pandemic has helped such businesses thrive after stuttering initially,” said Bansal, adding, “It’s (Zomato listing) a vindication for private market valuation and will further fire up the start-up space - more deals will get priced aggressively.”

Besides Swiggy, experts said other foodtech players expected to witness a positive impact on their valuations - if they plan to go public or raise private funds - include Rebel Foods, Dunzo, and Ola Foods. 

This month, Zomato’s biggest competitor, Swiggy, closed a $1.25-billion fund-raise. This took the valuation of the Bengaluru-based start-up up by more than 50 per cent to $5.5 billion, from the earlier $3.6 billion.

Ankur Pahwa, partner and national leader, e-commerce and consumer internet at EY India, said Zomato closed up 65 per cent on its debut day of trading. “That positive sentiment will always rub off on other companies in similar sectors,” said Pahwa.

“Listing on the exchange and showing such growth are a signal that the sector is accepted, even though the uptick has limited history," added Pahwa. 

Pahwa said from a valuation perspective, Zomato’s IPO has shown that the foodtech sector, including players such as Swiggy, Rebel Foods and others, is not overvalued in the private market and is on a par with the valuation in the public market. “There is a lot of perception that these firms are overvalued. But this IPO will change that,” he said.

Madhur Singhal, managing partner and chief executive officer (CEO) at management consulting firm Praxis Global Alliance, said Zomato’s IPO debut has enhanced the confidence of the start-up fraternity, as well as the investor community. 

“This shows the maturity of investors ploughing money into companies with future potential,” said Singhal, adding, “Also, further public listings will create the right valuation benchmarks, even in private funding rounds, much like what happens in China and the US.”

Akshaya Bhargava, founder of Bridgeweave, a UK-based financial technology firm, said Zomato’s IPO has set the yardstick for other firms.

“Zomato has got a stratospheric valuation. When Swiggy goes public, it will be compared to Zomato,” said Bhargava, who is also the founder CEO of Progeon (now Infosys BPO) and the erstwhile global CEO of Barclays Wealth and Investment Management. He is of the view that Swiggy’s valuation will rely on that comparison. “I have seen this (happening) in the UK market,” added Bhargava.

Vyom Shah, CEO and founder of Foodism, a  start-up for food enthusiasts and home chefs to explore, connect, and network, said Zomato’s IPO will have a huge impact on foodtech start-ups. 

“There is a massive feel-good value in the market. This is welcome after the year the food industry has had,” said Shah. “Technology IPOs may indicate a coming-of-age and positive growth for the Indian tech-start-up ecosystem. This will definitely represent a new phase for start-ups,” he added.

Salman Waris, managing partner at technology law firm TechLegis Advocates and Solicitors, said food services is a $65-billion market opportunity in India and growing at 9 per cent per annum. It is likely to reach $110 billion by 2025. Within the food services market of $65 billion, online delivery forms only a small subset at a market size of $4.2 billion (6-7 per cent). 

Analysts expect the food delivery market to be worth $12 billion by 2022. With Zomato’s IPO, they see the competition heating up between players such as Zomato, Amazon, Dunzo, and Ola Foods.

“It is evident that high growth in valuations will stiffen competition,” said Waris of TechLegis.

Bansal of BlackSoil said markets will closely watch Zomato’s execution in new growth areas and profitability metrics, which, in the long run, will help stabilise the valuation as well.

“But in the short term, all start-ups vying for IPOs having similar moats will definitely be able to hit the roadshow on a strong footing,” said Bansal.