What is exciting about Zomato’s IPO when it’s at a loss?

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Finally, Zomato IPO is on the upcoming list. The most awaited IPO of 2021 is going to be Zomato’s public offering. Zomato is An online restaurant aggregator and food delivery company, founded in 2008 by Pankaj Chadha and Deepinder Goyal, is today counted among the most significant and successful startups in India in the last decade along with rival startups Swiggy, Flipkart, and Byju’s, 

Zomato has filed a draft with India’s securities and exchange board (SEBI) for its $1 billion issues. Additionally, this is the first significant offering by an Indian consumer internet company in several years. The company 

“We have a history of net losses, and we anticipate increased expenses in the future,” the company said in its draft red herring prospectus submitted to Sebi.

ZOMATO IPO – WHAT’S THE BIG DEAL?

IPO stands for initial public offering; if a company files for an IPO, it means offering a few of its share to the general public.

As we know, Zomato has grown from a small startup to a worldwide company, and everyone would like to buy shares of a large venture. The reason behind Zomato’s initial public offering is to increase the company’s growth and its value high. 

ITS LOSSES

In this Covid-19 Pandemic mostly online food services platform, Suffered heavy losses in their business growth also brought down the order volumes significantly and caused a huge reduction in dining out revenue; Zomato said in its filings that they are working on several products to address this loss.

In the last nine-month period, which ended in December 2020, The Company has reported a net loss of INR 682 crores,

  • INR 2,385 crores for the year 2019-2020,
  • INR 1,010 crores for the year 2018-19, and
  • INR 107 crore for the year 2017-18.

“These efforts may be costlier than we expect and may not result in increased revenue or growth in our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from maintaining or increasing profitability or positive cash flow consistently,” 

MIDDLE OF A PANDEMIC

The Covid pandemic era has hit many service sectors, particularly the hospitality segment; consumer internet companies like Zomato improved after an initial lockdown last year. 

According to the company’s filings, the value of the gross order on their platform was about Rs 2684.91 crore in the quarterly January-March 2020, which fell to 1,093.63 crores in the quarterly April-June 2020.

Again it rose to Rs 2,981 crore during October-December 2020 quarter. 

Zomato warns

Zomato also has warned investors that The Company expects to expand its expenses and continuously losses for a period in the future and said for valuable investment, it would take time.

The company said the increase in revenue and all the investments received would be spent on expenditure.

Raamdeo Agrawal, the chairman & co-founder of Motilal Oswal Financial Services, Raamdeo Agrawal said that you are not discounting what the company has earned in giving valuations in the last five years but looking at what it may earn in the next 25 years. This is bizarre! 

IIFL Securities

IIFL Securities had said in a report earlier this year that it expects the company to churn operating profit as in the current financial year. 

IIFL Securities expects Zomato’s online food delivery to grow by 48 percent annually over the next five years. Still, fixed costs are expected to grow at only a 27 percent annual rate that could improve operating margins over the next decade.

Cash flow of Zomato

In the last three financial years, Zomato’s cash flow has reported negative operations. Zomato’s cash outflow from operations in the year ended December 2020 is INR 269 crores.

CONCLUSION 

Given that its DRHP was filed with SEBI on Wednesday, it would take two days to review the filings under securities monitoring.

However, once the process is started, it will depend on the market conditions.

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