There is such great appetite for the IPO of food delivery firm, Zomato Ltd, that it has advanced the dates of the issue and increased the size of the share offering by 20%.
More importantly, the IPO price band has been set at Rs72-76. The pricing at the upper end is about 70% higher than the Rs44.8 per share price large private market investors paid in a $600 million funding round less than a year ago. The investors included Tiger Global and Kora Capital. Temasek, which also participated in the funding round, had purchased shares at far lower prices earlier, bringing its average cost of acquisition to around Rs31 a piece.
Some other investors have made far greater returns, depending on when they first bought a stake in the firm.
The biggest gainer from investments in Zomato, of course, is Info Edge (India) Ltd, which started investing in the firm in August 2010. Its average acquisition cost is only around Rs1.16 per share, which means it stands to gain returns of about 6500%, using the higher end of the IPO price band. Sequoia Capital, an early stage investor, has periodically sold shares and is now left with a 7.3% stake in the firm. Its returns from the Zomato investment will be far higher compared to Temasek, albeit lower than that of Info Edge.
For Ant Group, which started investing in the firm about three years ago, the average acquisition price works out to about Rs17.3. This is after accounting for shares sales earlier this year at an effective price of Rs58.2 per share. For the remaining shares it holds – amounting to a 16.7% stake in the firm – the returns are as high as 340%. Of course, the Ant Group’s investments are what triggered a massive re-rating of the firm. This coincided with a shift in the business model, with Zomato pursuing food delivery more aggressively after the Ant Group’s investments.
But while private market investors have made mouth-watering returns, public market investors may be coming in a tad late.
As the chart shows, Zomato’s share price trajectory more or less correlates with the size of its fundraising. The higher the size of the fundraising, the higher the price at which it raises these funds.
But what this may also mean is that the IPO may be the peak as far as fundraising goes, and returns hereafter may be far more modest. The Rs9,000 crore being raised through the IPO is about 75% of the total funds raised by the company since inception (pre-IPO). Zomato will end up with cash of Rs15,000 crore post-IPO, which means it will have little need for funds for a long time to come. Unless the firm is extremely successful with large mergers and acquisitions, investors may need to be prepared for modest returns.
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