ZOMATO LTD .

Canara Bank Securities Ltd IPO Note

A WHOLLY OWNED SUBSIDIARY OF CANARA BANK
Date: 13.07.2021

Zomato is the largest online food delivery company in India

Issue details
that has global peers such as Doordash, Meituan, Yelp etc.
Price Band (in ` per share) 72-76
The company also has plans to expand into new adjacen-
cies like grocery delivery and nutraceuticals. The company Issue size (in ` Crore) 9375
plans to invest the IPO proceeds towards improving the
customer acquisition, building better technology platform Fresh Issue (in ` Crore) 9000
and other organic & inorganic growth opportunities. As Issue open date 14-07-2021
one of the largest aggregator in the delivery space of un-
derpenetrated online delivery market, we believe that the Issue close date 16-07-2021
company can improve its unit economics and turnaround
Tentative date of Allotment 23-07-2021
bottomline over a period of time. We recommend a SUB-
SCRIBE for long term for the issue. Tentative date of Listing 27-07-2021
Total number of shares (lakhs) 13020.83-12335.52
No. of shares for QIBs (75%)
9716.88-9202.89
(lakhs)
No. of shares for NII (15%) (lakhs) 1943.37-1840.58
No. of shares for retail investors
1295.58-1227.05
(10%) (lakhs)
No. of Shares of Employees (in
65.00
lakhs)
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Employee Discount NIL

About Company
Minimum order quantity 195
Zomato provides technology platform that connects customers, res-
taurant partners, serving their multiple needs. Customers use Face value (in `) 1.00
platform to search and discover restaurants, read and write custom-
er generated reviews and view and upload photos, order food deliv- Amount for retail investors (1 lot) 14,040-14,820
ery, book a table and make payments while dining out. On the other
Maximum number of shares for
hand , company provides restaurant partners with industry specific 2730(14 Lots)
Retail investors at lower Band
marketing tools which enable them to engage and acquire custom-
ers to grow their business while also providing a reliable and effi- Maximum number of shares for
2535(13 Lots)
cient last miler service. Company also operate a one stop procure- Retail investors at upper band
ment solution, Hyerpure which supplies high quality ingredients to
Maximum amount for retail in-
restaurant partners. The company also provides with transparent
vestors at lower Band- upper 1,96,560-1,92,660
and flexible earning opportunities to its delivery partners.
band (in `)
Exchanges to be listed on BSE, NSE

Promoters

The company is professionally managed and does not have an identifiable promoter in terms of the SEBI ICDR Regulations and the
Companies Act.

Objective of the Offer

 Funding organic and inorganic growth initiative

 General Corporate Purpose

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Brief Financials
Particulars (Rs. Cr) FY21 FY20 FY19
Share Capital 0.03 0.03 0.03
Net Worth 8096.11 2083.11 2597.29
Revenue from Operation 1993.79 2604.74 1312.59
PBT (815.12) (2385.60) (1010.51)
PAT (816.43) (2385.60) (1010.51)
NAV 15.09 4.77 6.92
P/E # NA NA NA
P/B # 5.04 NA NA

Source: RHP # Calculated at the upper price band

Industry Review
The strength of the Indian economy is underscored by the following factors-
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Rising consumption – As per World Economic Forum estimates, India is likely to be the third largest consumer market by 2030 driv-
en by development of communication infrastructure, education, rising impetus on capex spends by the Government, and more job
opportunities. The growth in consumption will be more geared towards services-based consumption as has been the case in India in
the past.

Large working population – As per United Nations Population Division estimates, India is one of the youngest nations in the world,
with a median age of 28 compared to 38 in China and the United States, 43 in Western Europe, and 48 in Japan. And today, 54.6% of
India’s population is in the workforce age bracket of 20 years to 59 years.

Growth in urbanization – As per World Bank estimates, 34-35% of India’s population (or approx. 470 million people), resided in ur-
ban towns and settlements in 2020. This is likely to increase to approximately 37-38% by 2025, as per United Nations Population
Division estimates. This trend is expected to reflect in greater purchasing power in the urban centers with stronger growth opportu-
nities across industries.

Internet and smartphone penetration in India has more than doubled from 2015 to 2020 and is increasing further. Since 2000, a
large part of India has skipped the traditional fixed line phones and embraced mobile. 90% of all phone connections were fixedlines
in 2000, and today over 98% of all phone connections are mobile, as per Department of Telecommunications, GoI. Internet adoption
has picked up quickly, as data rates in India have declined. In 2016, with the launch of Reliance Jio, data prices became affordable at
less than US$1 per GB and India’s internet adoption skyrocketed from 310-330 million internet users in 2015 to 660-690 million us-
ers in 2020.

At the same time, there has been significant growth in adoption of smartphones, driven by availability of low-cost alternatives from
local as well as global brands. Easy availability of smartphones, cheap data and high speed 4G connections have enabled Indians to
embrace digital applications. Compared to China, the digital penetration in India is still low and is expected to grow rapidly.

Source: RHP, CBSL

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Industry Review

Total addressable Food Services market opportunity of US$110 billion (₹7.7 trillion) in 2025
Food consumption, at US$607 billion (₹42.5 trillion) in 2020 constitutes around a quarter of India’s GDP. Most of this though, is driv-
en by home-cooked food.

Food Services, defined as non-home cooked food or restaurant food currently contributes only approximately 8-9% to the food mar-
ket. This is substantially low when compared to global economies like the United States and China which have approximately 47-
50% and 42-45% contribution from Food Services respectively (of the total food consumption).
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According to RedSeer, as of 2019, the company have a large total addressable Food Services market opportunity of US$65 billion
(₹4.6 trillion) growing at 9% per annum to US$110 billion (₹7.7 trillion) in 2025 with highly under-penetrated restaurant food-eating
behavior today. However, due to Covid-19, the size of Food Services market opportunity reduced to US$32-35 billion (₹2.2 – 2.5
trillion). While Food Services in India is highly under-penetrated, it is likely to grow steadily, taking share away from homecooked
food as has been the trend in the past as well. Growth will be driven by changing consumer behavior, reduced dependence of mil-
lennials on home-cooked food/kitchen set-up, increasing consumer disposable income and spending, and higher adoption among
the smaller cities.

Source: RHP, CBSL

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Industry Review

Competition

Food Services is a competitive market in India comprising food delivery players like Zomato and Swiggy, cloud kitchens like Rebel
Foods and branded Food Services players (including quick service restaurants like Dominos, McDonalds and Pizza Hut, among oth-
ers). Food delivery players also compete with multiple other participants in the Food Services industry including
restaurants which own and operate their own delivery fleets, traditional offline ordering channels, such as take-out offerings and
phone-based ordering, local publications, and other media, both online and offline where restaurants place their advertisements to
attract customers.

In this competitive market, Zomato has consistently gained market share over the last four years to become the category leader in
the food delivery space in India in terms of GOV from October 1, 2020 to March 31, 2021. The chart below represents yearon- year
growth of Zomato and the industry.
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Competitive Strengths
Strong network effects, driven by unique content and transaction flywheels: Company’s end to end Food Services approach
makes it the most unique Food Services platform globally combining the offering of platforms such as Yelp, Door Dash and Open
Table in a single mobile app, according to Red Seer. The company had 389932 Active Restaurants Listings across 525 cities in India,
as of March 31, 2021. Restaurant listings on company’s platform include most of the following information and data points such as
photos of the menu, photos of the restaurant premises, address and GPS coordinates, phone number, website, social media pres-
ence (Facebook and Twitter links), cuisine, opening timings, average cost for the meal, free parking availability, indoor or outdoor
seating availability , free WiFi availability, whether the restaurant offers live entertainment has a smoking room, whether table
booking is recommended among others. The company terms this information about restaurants as “Structured Content”.

The company collects and curates all Structured Content using a feet-on-street approach, aided by in-house developed technology
which helps the company do this in a cost effective manner. Outside of Structured Content, the company also has CGC which con-
sists of reviews, ratings and photos posted by customers on the platform. In Fiscal 2021, 12.7 million customers generated 61.8 mil-
lion units of CGC on the platform

Company’s focus on content attracts a large number of customers to its platform organically. During Fiscal 2021, 68.0% of new cus-
tomers were acquired organically and not through any paid advertisements. Company’s customers value the rich content of the
restaurant listings on the platform and further enhance the richness of the restaurant listing content by adding their own reviews
and photos to the platform which leads to a virtuous cycle of more new customer acquisition.

Source: RHP, CBSL

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Competitive Strengths
This unique content strategy feeds into the transaction funnel and creates a strong flywheel effect as the company believes that
more content leads to more customers and more customers lead to richer content. More customers on the platform also increases
the number of food orders for the restaurants on the platform in turn leading to more restaurants becoming available for food de-
livery on the platform. More restaurants on the platform, increases the choices available to the customers leading to growth in cus-
tomers.

Finally, the company believes that more food delivery orders on its platform reduces the delivery cost which reduces the prices for
its customers, thereby leading to even more food delivery orders.

These network effects increase the stickiness and loyalty of both customers and restaurant partners, creating an interlinked virtuous
cycle.
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Widespread and efficient on-demand hyperlocal delivery network: The company operates one of India’s largest hyperlocal delivery
networks, based on number of delivery partners as of March 31,2021, according to RedSeer, with 169,802 Active Delivery Partners
in the month of March 2021. Given the presence and interaction of the three stakeholders in a limited geographical area the deliv-
ery network is referred to as ‘hyperlocal’. In Fiscal 2021, delivery partners fulfilled 94.1% of Orders delivered. The median delivery
time of the Orders fulfilled by us was approximately 30 minutes in Fiscal 2021 (delivery time is calculated from the time the Order is
placed on the platform to the time the Order is delivered to the customer). Food delivery is highly complex as food is a highly perish-
able commodity, which requires careful handling while maintaining high levels of hygiene and real-time on-demand service. Compa-
ny’s precise and real-time, demand forecasting,fleet optimization and intelligent dispatch technology optimizes matching of orders
and delivery partners using machine learning.

Zomato is a strong consumer brand recognized across the length and breadth of India: The company believes it has a strong brand
name and recall, across large and small Indian cities. Its offerings include both food delivery and dining-out, thereby giving it the
ability to capture mind share of consumers for ‘non-home cooked food’. The company believes that its brand is synonymous with
food and customers associate it with everything to do with food. The company delivery partners also carry Zomato branded gear
including t-shirts, jackets, bags, and boxes, further enhancing brand awareness on the streets.

Source: RHP, CBSL

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 Canara Bank Securities Ltd

Risk Factors

Company has a history of net losses and it anticipates increased expense in the future: The company has incurred restated loss for
the year of ₹10,105.14 million, ₹23,856.01 million and ₹8,164.28 million in Fiscals 2019, 2020 and 2021 respectively. The company
expects its costs to increase over time and the losses will continue given significant investments expected towards growing business.
It has expended and expect to continue to expend substantial financial and other resources on, among others, advertising and sales
promotion costs to attract customers and restaurant partners to its platform, developing its platform, including expanding the
platform’s offerings, developing or acquiring new platform features and services, expanding into new markets in India, and expand-
ing delivery partner network. These efforts may be more costly than expected and may not result in increased revenue or growth in
the business. Any failure to increase revenue sufficiently to keep pace with investments and other expenses could prevent the com-
pany from achieving profitability or positive cash flow on a consistent basis.

Failure to retain restaurant partners, customer and delivery partners : The company believes that growth of its business and reve-
nue is dependent upon the company’s ability to continue to grow network by retaining existing and adding new restaurant part-
ners, delivery partners and customers in order to increase GOV, drive revenue growth and achieve profitability. An increase in the
number of transacting customers on its platform drives the number of orders, as new customers bring new orders. More orders
completed on platform results in more GOV being generated which in turn attracts additional restaurant partners and delivery part-
ners to platform who seek to benefit from the enhanced business opportunities. An increase in the number of restaurant partners
on the platform in turn attracts more customers. If it fails to retain either existing restaurant partners (especially its most popular
restaurant partners), delivery partners (as a result of failing to provide compelling earning opportunities on platform) or customers
(including as a result of impaired relationships, decrease in popularity of a restaurant partner, delivery issues or competition) or fail
to add new restaurant partners, delivery partners and consequently the customers, the value of the network may be diminished.
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Intense competition from food delivery: The markets in which the company operates are intensely competitive and characterized
by low costs of entry, shifting customer preferences, fragmentation and frequent introductions of new services and offerings. In
particular, the Indian food delivery industry is fragmented and intensely competitive. According to the RedSeer, in India, Zomato
competes with other food delivery companies, such as Swiggy, chain restaurants that have their own online ordering platforms,
such as Pizza Hut, McDonalds and Dominos, cloud kitchens like Rebel Foods, other restaurants that own and operate their own de-
livery fleets and companies that provide point of sale solutions and restaurant delivery services. In addition, it competes with tradi-
tional offline ordering channels, such as take-out offerings, telephone-based ordering, and paper menus that restaurants distribute
to customers as well as advertising that restaurants place in local publications and digital media to attract customers. Further, it also
faces competition from mobile payment applications that facilitate food ordering. Its food delivery operations could also compete
with hyperlocal logistics operators that can be availed of by restaurant partners. Changing traditional ordering habits is difficult, and
if restaurants and customers do not embrace the transition to local food delivery as it expects, business, financial condition, cash
flows and results of operations could be adversely affected.

Our Views

Zomato is the largest online food delivery company in India that has global peers such as Doordash, Meituan, Yelp etc. The company
also has plans to expand into new adjacencies like grocery delivery and nutraceuticals. The company plans to invest the IPO pro-
ceeds towards improving the customer acquisition, building better technology platform and other organic & inorganic growth op-
portunities. As one of the largest aggregator in the delivery space of underpenetrated online delivery market, we believe that the
company can improve its unit economics and turnaround bottomline over a period of time. We recommend a SUBSCRIBE for long
term for the issue.

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 Canara Bank Securities Ltd

Analyst Certification
We/I Akshay Pradhan, M.Com, Research Analyst authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer (s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly
related to the specific recommendation (s) or view (s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compen-
sation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned
in the report.
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