Food supply platform Zomato is all set for the launch of its IPO on July 14. As per the media reviews, the IPO issuance has touched Rs 9,375 crore at a value band of Rs 72-76. The IPO will embrace the sale of shares value Rs 375 crore by present buyers.
A big a part of the proceeds of Rs 6,745 crore, suggests a report, shall be used to fund the corporate’s progress.
Zomato is reportedly eying a valuation of Rs 64,365 cr or $8.7 billion post-money valuation. The face worth of every share shall be Rs 5. The minimal bid dimension shall be 195 fairness shares.
Elara Capital jots its perspective on the identical:
Profitability proliferates on Pandemic; revenues nonetheless lag
COVID-19 has transfigured Zomato’s many enterprise drivers:
1) Average order worth (AOV) soared 39% versus pre-COVID ranges, on rising order visitors from premium and high-end eating places/QSR chains
2) Delivery expenses per order rose 70% on greater AOV and rising supply expenses
3) Also, reductions as a proportion of web AOV waned sharply on ebbing client dine-in frequency. Together, these led to optimistic per order contribution margin, which can fizzle out as such developments might reverse as soon as normalcy resumes
Revenues proceed to be decrease 24% versus pre-COVID ranges regardless of these triggers, because the variety of orders is low on: 1) decreased frequency and a couple of) make money working from home (WFH).
Favorable demographics to drive sturdy double-digit progress
Zomato’s FY22E-24E income CAGR ought to stand at 28% on:
1) rising smartphone penetration
2) rising order frequency in metros and
3) enlargement into tier-2/3 markets to achieve new prospects
FY21 MAU/MTU waned 23%/36% versus pre-COVID ranges, totally on: 1) decrease utilization frequency in metros, 2) reverse migration and three) Work from dwelling.
Multiple dangers ought to test premium valuations
Shift to normalcy submit COVID might decrease AOVs as shoppers might wish to pay greater to partake within the general dine-in expertise. Delivery expenses too might not supply big progress potential as they’re already at ~9% of AOV (steady-state) – Global common 10-12%. Take-rates too are excessive at ~17%, way more than world common, with capped progress scope. A big entrant is a threat as India market is under-penetrated, engaging for meals supply. These dangers might counter-check Zomato’s shortage premium.
Profit visibility, new enterprise execution – Key monitorables
We have valued Zomato on 5 parameters:
1) greater progress fee versus world friends
2) justified shortage premium given only a few listed web performs in India and Zomato’s favorable demographics-led progress
3) duopolistic market (although massive entrant overhang all the time exists)
4) profitability (delayed revenue visibility as India is a price-sensitive market and rising frequency wants greater discounting) and
5) new enterprise mannequin (such mannequin executions – Delivery, grocery and so on. – extremely fragmented and aggressive)
So, the shortage premium – ~50-60% versus world friends’ valuations – is honest. Global friends’ EV/gross sales is at 6.5x common of two largest gamers, Meituan and DoorDash, from China and the US respectively. So, INR 80, appears to be a good TP foundation FY24 EV/Sales a number of. However, as Zomato is a pure digital play, even on a five-year horizon (FY22-26), primarily based on our estimates/above variables, an INR 120 TP, which is 51% greater and interprets into 8.4% CAGR over 5 years, limits the upside potential for buyers