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Zomato’s USD 1.2bn offering oversubscribed by 105% on Day 1

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Food delivery firm Zomato saw a strong investor response on the first day of the launch of its Initial Public Offering (IPO). The issue had attracted bids for 77.6 crore shares, which is 105 per cent of the issue size of 71.9 crore shares. 

According to BSE data, the shares allocated for the Qualified Institutional Buyers (QIBs) were subscribed by 98 per cent. The shares allocated for non-institutional investors were subscribed by 13 per cent and shares meant for employees were subscribed by 18 per cent. Retail Individual Investors (RII) subscribed to 34.8 crore shares, which was 269 per cent or 2.6 times of the issue size of 12.9 crore shares.

Key Points:

         55.22 crore equity shares were allotted to anchor investors for Rs 76 per equity share.
         The funds raised through anchor investors are almost 45 per cent of the total issue size.
         Overall, 75 per cent of the shares are reserved for qualified institutional buyers, while 25 per cent of shares are reserved for high net worth individuals and retail investors.
         The brand has raised Rs 4,197 crore from 186 anchor investors on Tuesday ahead of its IPO opening.

The IPO comes at a time when Indian and global markets are at or near record highs. The Indian economy is currently facing a huge setback due to the series of lockdowns, sluggish growth and rising unemployment, raising analysts’ fears of a stock market bubble that could be bolstered further by highly valued tech companies going public.  As a result, Zomato’s financial year ending March 2021 revenue was down by 23.4 per cent from the previous year. The Zomato IPO is likely to pave the way for other digital economy companies to take the public route, with the likes of Flipkart, Paytm and Ola waiting in the wings. 

The IPO, India’s biggest this year so far, will be available for subscription during July 14-16, 2021. The IPO has created quite a buzz with investors keenly waiting for the public issue. The price band of Zomato IPO is fixed at Rs 72-76 per share of the face value of Rs 1 each and the company aims to raise Rs 9,375 crore through the offer. 

Investors can subscribe to the initial public offering (IPO) by betting for a lot of 195 shares or in multiples thereof. Retail investors can bid for a maximum of 13 lots at the upper price band. The quota for retail investors in the Zomato IPO is fixed at 10 per cent of the net offer. QIB quota is fixed at 75 per cent, while for NIIs the quota is reserved at 15 per cent.

Marquee investors such as New World Fund, Tiger Global Investment Fund, Fidelity Fund, Baillie Gifford Pacific Fund, Morgan Stanley Investment Fund, Canada Pension Plan Investment Fund, Government of Singapore, Kotak Flexicap Fund, among others, were allotted more than 2 per cent of the anchor book.

Out of the total allocation, 18.41 crore shares were allotted to 19 domestic mutual funds such as SBI, Axis, Aditya Birla, Kotak, Mirea, Motilal, UTI, Nippon India, HDFC, IIFL, Sundaram, Tata, and Principal, among others.

While the IPO turned out to be a palpable event, gaining maximum excitement in the media for the entire day, experts also scrutinized business model ahead of the share sale.  Analysts are generally optimistic about its long-term growth prospects after listing, but there will be pressure on the company to report profitability, which most domestic internet companies have failed to achieve. The biggest challenge for most consumer Internet companies in India has been making deliveries a ‘cost-efficient process’.  It is very tough for companies to achieve good margins on online orders. Making effective progress on the Average Value Order (AOV) will be a big challenge for Zomato in the coming months. 

The shares of Zomato are likely to be listed on the BSE and NSE on July 27. Zomato will use the fund to proceed its organic and inorganic growth initiatives and for general corporate purposes. Launched in 2008, Zomato offers food delivery and curates restaurant reviews. It is available in 525 cities and caters to some 6.8 million customers every month – and has become a household name in India.

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