Investors lap up Zomato’s India IPO with bids of $46 billion

A stock offering by Indian food delivery startup Zomato drew bids worth $46.3 billion as it was more than 38 times oversubscribed on Friday, signalling investors were bullish about the fast-growing sector.

The $1.3 billion IPO of Zomato, which is backed by China’s Ant Group, was the first in India’s food delivery sector. It was priced at 72 to 76 rupees per share, giving it a valuation of up to $7.98 billion.

Big institutional investors also placed major bets, with the subscription for their category at 52 times the shares on offer, stock exchange data after subscriptions closed on Friday showed.

“There is insane demand and a lot of excitement,” said Jimeet Modi, founder of Indian brokerage Samco Securities. “Retail investors are looking at this from a listing gains point of view.” Investors are placing bets on Zomato even though it flagged in its IPO draft prospectus that its costs and losses would continue to rise as it ramps up investments.

Before the IPO opened this week, Zomato raised $562 million from 186 big financial investors, including marquee names such as Tiger Global, BlackRock, JPMorgan and Morgan Stanley.

The Zomato IPO comes when India’s markets are near their all-time highs and there is growing interest from digital companies to list on bourses.

Alibaba-backed financial payments app Paytm on Friday filed draft papers in India for a $2.2 billion IPO, while Walmart’s e-commerce giant Flipkart is also planning one.

Just like US-based DoorDash, Zomato is mainly a food delivery app, having partnered with 350,000 restaurants and cafes in 526 Indian cities. It also allows customers to book tables for dining-in, write food reviews and upload photos.

Zomato competes with local rival Swiggy, which is backed by Softbank, and Amazon’s still nascent food delivery service in a food delivery market that Boston Consulting Group expects will touch $8 billion by 2023, from just $4 billion last year.

The Zomato app has 41.5 million customers using its service on an average every month, and orders on its platform surged to 403.1 million in the year 2019-2020, from just 30.6 million in 2017-2018, its draft IPO prospectus showed.

While the Zomato IPO is seeing strong investor interest, some analysts said the company’s valuations were too high, especially because the company does not make a profit.

Himanshu Nayyar, an analyst at India’s Yes Securities, has said in a research note that Zomato’s IPO price range was “really expensive”, as “its path to profitability is still not clear.” Zomato is valued at an enterprise value that is 25 times sales for 2021, compared with similar global peers that are on an average value at 10 times, the research note added.

Paytm’s IPO: Digital payments pioneer Paytm on Friday took a major step towards launching India’s biggest initial public offering, telling regulators that it would seek to sell $2.2 billion in shares.

The offering is the latest in a wave of IPOs in India, with food delivery firm Zomato this week raising $1.3 billion.

Paytm is backed by the Ant Group of Chinese tycoon Jack Ma, which holds a nearly 30 percent stake, along with Masayoshi Son’s Softbank Vision Fund, Berkshire Hathaway and other high-profile investors.

Founder and chief executive Vijay Shekhar Sharma, who has a net worth of $2.3 billion according to Forbes, holds just under 10 percent of the company.