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Zomato’s IPO and its implications on FoodTech Companies

By 13/09/2021April 21st, 2022No Comments
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Zomato IPO Implications on FoodTech Companies

Zomato IPO: The effects of Covid-19 have been kind on the food delivery space which is witnessed to be growing in leaps and bounds. Amidst the IPO listing festival, the entry of the online food delivery company Zomato Ltd.’s initial public offering made quite a stir in the markets as it is the first online delivery company to get listed on the stock exchange, thereby could be a trendsetter. It could also set the tone for the rival companies and their valuations in the public markets. 

Zomato began its journey in 2010 as a FoodTech unicorn start-up and the primary focus of the company is catered to online food delivery services and disseminating restaurant information along with reviews which is mainly a business to customer (B2C) offering.

The Company did incur large losses during the 2020 and 2021 Covid-19 lockdown phase; however, it was able to secure a large number of food delivery orders also. Zomato saw a significant increase in its gross order value till December 2020. Zomato’s rising average order value (AOV) also helped it gain innumerable profits. 

Zomato certainly made a breakthrough start with its initial public offering with an initial price band of Rs 72 to Rs 76 per share. Also, the company saw a dynamic subscription rate of 38.5 times which makes it the highest subscribed IPO in the last 13 years among IPOs worth more than Rs 5,000 Crore also with a demand worth Rs 2.1 Trillion.

As Zomato is notably the first-of-kind firm to debut on the stock exchange with a sweeping opening, the question that arises is as to the implications its IPO shall have on other rival FoodTech companies such as Swiggy, Rebel Foods, and Ola Foods. 

The powerful opening of Zomato.Ltd set a high chance of a constructive impact on the companies running on similar business lines as Zomato. Moreover, Zomato’s first-day growth indicates the inclusiveness of the food technology sector and the startup sector. It underlines the fact that the markets are startup-friendly and this binds the trust of the investors. Furthermore, this boosts the startup and food tech sector’s confidence and pushes more companies belonging to the same sector to walk the path of Zomato.

The outlook of having a long-run potential and bright future for the company can be seen in the IPO market capital of Zomato which stands at Rs 60,000 Crores. This is nothing but an indication of a robust burning competition between the firms within this sector such as Swiggy, Zomato, Dunzo, Ola Foods, and Rebel Foods. 

Furthermore, the Covid-19 pandemic is here to stay, food technology companies such as Swiggy, Olafoods, Rebel foods, etc. have a good scope to enhance. As public movement is restricted, services such as home delivery, pick up drop, etc. have become a priority for the public, hence have prospered. Therefore, the chances of these FoodTechs following Zomato’s footsteps is likely. 

However, one major drawback which can be witnessed in this situation is that Zomato has set a benchmark for all the Food Technology game players who wish to go public. While this definitely is a good opportunity for them, it also makes up an implied rule to follow Zomato’s valuation. Another major challenge that can affect Zomato’s profits can be sustaining itself when the pandemic tones down.

Even though the long-run aspect of food technology companies promises a bright future, the entry of newer players and the normalizing and opening up of public space post the pandemic are likely to affect the huge growth of Zomato during the Covid- 19 pandemic restrictions. In any case, currently, Zomato and Swiggy are firmly holding on to the food delivery industry. 

Therefore, Zomato’s decision to convert itself into a public company is certainly a welcome move. As the effects of Covid-19 have been kind on the food delivery space which is witnessed to be growing in leaps and bounds; hence this decision would enable the shareholders as well as the promoters of the company to thrive.

Furthermore, internet-based companies like Zomato deciding to go public could be an encouraging indicator for capital flow in the booming start-up scene of India. However, the cutthroat competition in the industry will be the ultimate deciding factor in its success.

 


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