IPO Review - Zomato Ltd - ICICI Direct

Zomato is one of the leading food service platforms in India in terms of value of food sold as of March 31, 2021. It was initially launched as "DC Foodiebay Online Services Pvt Ltd" in January 2010. During FY21, 3.21 crore average monthly active users visited the platform. It is currently present in 525 cities in India with 389,932 active restaurant listings. It also has footprints across 23 countries outside India. Over the past 12 years, it has grown from food discovery platform to a food service platform with four major segments 1) Food delivery (B2C) - The company is a leader as per RedSeer, 2) Dining out (B2C) - Provides tools for restaurant owners to acquire customers, 3) Hyperpure (B2B) - Started in 2019, it provides ingredients and kitchen products to restaurant partners and 4) Zomato Pro - It is a paid membership programme which unlocks flat percentage discounts for its customers.

Investment Rationale

A $110 billion opportunity in next five years: (Rs. 7.7 lakh crore)

Restaurant food or food service contribute only 8-9% of food consumption market vs. 54%, 58% for US, China, respectively. According to Redseer, India has an addressable food service market of $65 billion (Rs. 4.5 lakh crore), set to grow to Rs. 7.7 lakh crore in 2025 as millennials depend less on home cooked food/kitchen set-up with rising disposable incomes and spending.

Zomato - Strong consumer brand in India

The company's campaigns, community and content has created a strong consumer brand in India. In FY21, 68% of their new customers were acquired organically and not through any paid advertisements. The company will continue to invest in their branding activities to increase their brand awareness and leverage its current capabilities into expanding other related businesses like grocery, fitness and nutraceutical segment.

Focus on unit economics and growth

Significant investments in marketing and promotions to accelerate customer adoption of food delivery in the past has resulted in customers returning to their platform for repeat purchases. With higher scale of operations, ad spends as percentage of revenue has reduced over time leading to improved unit economics.

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Source : Equity Bulls

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