India’s first startup unicorn IPO could be just a month away.
The Securities and Exchange Board of India (SEBI) has formally approved Zomato’s application for an initial public offering (IPO). The processing status of Zomato’s draft red herring prospectus (DRHP) on SEBI’s website shows that it has received a final observation letter. Getting a final observation letter is akin to getting a go-ahead to launch the IPO. Sources told Business Standard that the IPO could hit markets as early as this month.
Investment banking sources said they have already commenced roadshows for Zomato’s IPO and they are anticipating a strong response. “The interest from investors across the board is encouraging. Zomato’s IPO will pave the way for other domestic unicorns and start-ups to go public,” said an investment banker handling the share sale.
Zomato will raise Rs. 7,875 crore from equity markets at a valuation between Rs. 50,000 and Rs. 60,000 crore. Existing investor InfoEdge, which has a 18% stake in the company, will offload Rs. 375 crore of its shares as well.
This is quite the turnaround for Zomato — just over a year ago, Zomato’s business had been completely shut down during the first lockdown, and when food deliveries had finally been permitted, was reporting only 50% of their pre-Covid numbers. Zomato had done its best to cope, cutting salaries of employees and senior leadership, and had even laid off 520 employees. But as fears around the virus had ebbed, Zomato had reported that its order numbers had steadily risen, and by the end of the year, Zomato was saying that it had surpassed pre-Covid order values. This had also reflected in the company’s valuation — in December, Zomato had raised funds at a $3.9 billion valuation, and in March this year, had raised funds a $5.4 billion valuation.
Zomato’s going public will be a watershed moment for Indian startups. Some companies, like MakeMyTrip, have done IPOs abroad, while smaller startups, like EaseMyTrip, have gone public in India, but Zomato will be the first Indian unicorn startup to go public. India now has no shortage of extremely valuable startups — some estimates suggest that there are as many as 100 startups valued at nearly $1 billion in India — but these companies’ valuations have only been determined by private markets thus far. Skeptics have often scoffed at some of these sky-high valuations, suggesting that these startups are very aggressively valued by private investors, but going public can help these companies justify their numbers. Zomato’s IPO, in a sense, could end up being the validation that India’s startup ecosystem needs — if its stock is lapped up by investors, it’ll help rationalize the valuations of several other internet startups; if it doesn’t do particularly well, it’ll also call into question the valuations of other companies. Zomato is carrying a fair amount of responsibility as it prepares to go public, and its performance at public stock markets will likely influence the private valuations of hundreds of Indian startups.