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ZOMATO IPO Analysis

 ZOMATO IPO- Threats and Strengths analysis 


Now a days  peoples are applying to every IPO's because of recently listing of many was blockbuster. But this is not good trend to apply IPO's without understanding of their business. If someone ask me about some IPO and wants my answer whether  they apply for IPO or not, I just simply replying to everyone "If you don't want to read Draft Red Herring Prospectus of IPO then stay away from these IPO business." But many peoples not able to read DRHP of IPO(300/400 pages, I am also not reading it line by line) because of too large document I am here publishing my point of view.

Summary of ZOMATO's primary business

Our technology platform connects customers, restaurant partners and delivery partners, serving their multiple needs. Customers use our platform to search/discover restaurants, read/write reviews and upload photos, order food, book tables and make payments while dining-out. We provide restaurant partners with marketing tools to acquire customers. We also operate Hyperpure, wherein we supply ingredients and kitchen products to restaurant partners. We provide our delivery partners earning opportunities. Our mobile application is the most downloaded food and drinks application in India in each of the last three years since 2018 on iOS Appstore and Google Play combined, as per App Annie’s estimates.


In our country market share of outside food versus home cooked food have huge differences. Out of total food 90% is home cooked, 10% food is from hotels and restaurants. In this 10% having huge competition and due to pandemic many restaurants are permanently closed. Peoples also preffering home cooked food due to pandemic and recipe channels on YouTube are attracting  towards cooking. So this food delivery sector is full of competition with uncertainty about future growth.
Positive nod also here is if external threats reduces then this sector will be flourishing in future and ZOMATO will be early bird which taking advantage due fund raising through this IPO.



Promoters:
Our Company is a professionally managed company and does not have an identifiable promoter in terms of the SEBI ICDR Regulations and the Companies Act.


Offer:


Here good thing is this IPO is more about new issue rather than promoters exit. Recently we saw many IPO's which are offer to public because of private equity holders wants exit not for raising funds for expansion.


Financials:

ZOMATO made losses back to back for last 3 years or we can said it never made any profit since started. This is very serious thing, many companies mananage to show profit in their balance sheet prior years when they willing to go public list. Might be ZOMATO's promoters not able to 'manage' it. Basic earning per share also negative.


Criminal and civil proceedings 


Yes, there not just civil but criminal proceedings also present on company and its promoters. The proceedings are pending in office of judiciary. So get it here itself about IPO application. There are also tax disputes pending in front of tribunal of IT.



Risk Factors for ZOMATO as well as for whole sector


In DRHP company mention 60+ risk factors, I am mentioning here most relevant factors.

1. Zomato have a history of net losses and we anticipate increased expenses in the future.
2. If ZOMATO fail to retain our existing restaurant partners, customers or delivery partners or fail to add new restaurant  partners, delivery partners or customers to our portfolio in a cost-effective manner, our business may be  adversely affected.
3. Unfavorable media coverage could harm company's business, financial condition, cash flows and results of operations.
4. Zomato face intense competition in food delivery and other businesses and if we are unable to compete effectively, our business, financial condition, cash flows and results of operations could be adversely affected.
5. Company rely on third-party service providers to deliver our services to customers, restaurant partners and delivery partners on our platform, and any disruption of or interference with our use of that service could adversely affect our business, financial condition, cash flows and results of operations.
6. There are pending litigations against Company, Subsidiaries, and certain of our Directors. Any adverse decision in such proceedings may render them liable to liabilities/penalties and may adversely affect our  business, results of operations, cash flows and reputation.
7.  If inflation rises in India, increased costs may result in a decline in profits.


Acquisitions:




Qualitative factors and our strengths:

(a) Strong network effects driven by our unique content and transaction flywheels;
(b) Our widespread and efficient on-demand hyperlocal delivery network; 
(c) Our technology and product-first approach to business; and
(d) Our strong consumer brand which is recognized across the length and breadth of India.



Business  model of ZOMATO:





Food Services market:




According to RedSeer, we 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. While Food Services in India is highly under-penetrated, it is likely to grow steadily, taking share away from home-cooked food as has been the trend in the past as well. Growth will be driven by changing consumer behavior, reduced dependence of millennials on home-cooked food/kitchen set-up, increasing consumer disposable income and spending, and higher adoption among the smaller cities.



Comment:

Every company have it's own pros n cons, ZOMATO's business model is looking simple in first look, but it complex too. Past performance of company not guarantee future performance. Also we can not gamble on its future, there is gray area. The operational cost of company is huge. As crude prices rising affect the fuel prices which increases  food delivery cost for company as model completely rely on that. Another is rising inflation also changing behavior of consumer may be home cooked food could be proffered by peoples. Also as per ground survey relation between restaurants and Company not much well so that also be biggest threat to company's business. Like Jio, if someone enters in market with low cost model then ZOMATO's bussines might be hurt. So conclusion is simple only bet on winning horse.
But one more factor is need to consider, recent trend in peoples. As this IPO is hyped by media and many influencer you may go for living gain only. Don't stay there for long period. Get whatever listing gain or loss and get out from position. Open position for listing gain only not for long term investment. If company will come up with good result then we can enter in the business.








Mayur Jagtap

Investment Consultant.



For regular and daily small update 

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