TRADING & INVESTMENT ASSIGNMENT

By: Md. Shaheed Haque

ID-DC2023BCM0037

Topic:ZOMATO LTD.
 IPOReview|ZomatoLtd ICICIDirectResearch

Industry Overview– Marketopportunity

A$110billionopportunityinnextfiveyears:(|7.7lakhcrore)
The food consumption market was at $670 billion (| 46.9 lakh crore) in
2019most of which was driven by home cooked food. Restaurant food or
foodservice contributed only 9-10% of the food consumption market. This
issubstantially low compared to global economies like the US and
China,whichhave~47-50%and42-
45%contributionfromfoodservices,respectively.
According to RedSeer, as of 2019, there is a large total addressable
foodservices 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-
penetratedrestaurantfood-eatingbehaviourtoday.However,duetoCovid-19,
the size of the food services market opportunity reduced to US$32-
35billion (| 2.2–2.5 trillion). While food services in India are highly under-
penetrated,itislikelytogrowsteadily,takingshareawayfromhomecookedfood.
Growth is expected to be driven by changing consumer behaviour,reduced
dependence of millennials on home-cooked food/kitchen set-
up,increasing consumer disposable income & spending and higher
adoptionamongsmallercities.

Exhibit2:ComparisonofIndia,USandChinamarket

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 IPOReview|ZomatoLtd ICICIDirectResearch

Internetpenetration
With the launch of Reliance Jio in 2016, data prices became affordable
atlessthanUS$1perGBandIndia’sinternetadoptionskyrocketedfrom310-330
million internet users in 2015 to 660-690 million users in 2020. At thesame
time, there has been significant growth in adoption of smartphones,driven
by availability of low-cost alternatives from local as well as globalbrands.
Easy availability of smartphones, cheap data and high speed
4GconnectionshaveenabledIndianstoembracedigitalapplications.However,
comparedtoChina,thedigitalpenetrationinIndiaisstilllowandisexpectedtogro
wrapidly.Itislikelytoreachover985millionusersby2025.

Exhibit4:Analysisofpopulationwithaccesstointernet–India&China

Growthinurbanisation
AsperWorldBankestimates,34-
35%ofIndia’spopulation(or~470millionpeople), resided in urban towns and
settlements in 2020. This is likely toincrease to ~37-38% by 2025, as per
United Nations Population Divisionestimates. This trend is expected to
reflect in greater purchasing power
inurbancentreswithstrongergrowthopportunitiesacrossindustries.

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 IPOReview|ZomatoLtd ICICIDirectResearch

Companybackground
FoundedbyDeepinderGoyalandPankajChaddahinAugust2008,Zomatowasin
itiallylaunchedasFoodiebay.ItgainedinstantmediaattentionwhenInfo Edge
founder Sanjeev Bikhchandani offered to fund the company.Zomato is
currently present in 525 cities in India and 23 countries outsideIndia. Its
technology platform connects customers, restaurant partners anddelivery
partners, serving their multiple needs. The company also providesrestaurant
partners with industry-specific marketing tools, which enablethem to
engage and acquire customers to grow their business while
alsoprovidingareliableandefficientlastmiledeliveryservice.Italsooperatesao
ne-stop procurement solution, Hyperpure, which supplies high
qualityingredientstorestaurantpartners.
Exhibit5:Keyoperatingandfinancialmetrics

Overthepast12years,ithasgrownfromafooddiscoveryplatformtoafoodservic
eplatformwithfourmajorsegments.

 Fooddelivery(B2C)-
ThecompanyisaleaderinthissegmentasperRedSeer.Ithasseenarapidgro
wthwithordersincreasingby13.2xfrom
3.06croreinFY18to40.3croreinFY20.However,itcamedownto23.9crorein
FY21duetoCovid.Thecompanyhas1,69,802deliverypartnersand1,48,384
activefooddeliveryrestaurants

 Dining out (B2C) - Provides tools for restaurant owners to

acquirecustomers. The company has 3,89,932 active restaurant
listings on itsplatformandinFY21.Dining-
outserviceswereseverelyimpactedbytheCovid-
19pandemicinFY21andtheresultantlockdownsinthecountry

 Hyperpure (B2B) - Started in 2019, it provides ingredients and

kitchenproducts to restaurant partners via direct sourcing from
farmers. InMarch 2021, the company supplied to over 9,225 restaurant
partnersacross six cities in India. Revenue from sale of traded goods,
whichincludesrevenuefromHyperpureoperations,was|14.9crore,
|107.6croreand|200.2croreinFY19,FY20andFY21,respectively

 Zomato
Pro–Itisapaidmembershipprogramme,whichunlocksflatpercentagedis
countsforitscustomers.ItallowsProRestaurantPartnerstomarketthemse
lvestoaselectaudience.AsofMarch2021,ithad1.5million Pro Members
and over 25,443 Pro restaurant partners in India.Revenue from sale of
subscription product, Zomato Pro for FY19,
FY20andFY21was|56.2crore,|87.9croreand|57.5crore,respectively.

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 IPOReview|ZomatoLtd ICICIDirectResearch

Businessstoryincharts

Exhibit1:Monthlyactiveusers(MAU)havegrownatCAGRof73% Exhibit2:….whilemonthlytransactingusershavegrownexponen
duringFY18-20… tiallyfrom9lakhinFY18toover1croreinFY20…

1.50
5.0
4.2
4.0 1.0
3.2 1.00
2.9
3.0
0.6
0.50 0.5
2.0 1.4
1.0 0.0
0.00
0.0
FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21

AverageMAU(In crore) AverageMTU(Incrore)

Exhibit3:Sharpriseingrossordervalue(GOV) Exhibit4:Trendsinnumberoforders
50.0
15000 40.3
11220. 40.0
12000 9482.8
30.0
9000 23.9
538 20.0 19.1
6000

1334. 10.0
3000
3.1
0 0.0
FY18 FY19 FY20 FY21
FY18 FY19 FY20 FY21
GrossOrderValue(GOV)-|crore
Nooforders(Incrore)

Exhibit5:ActivefooddeliveryrestaurantsinMarch2021 Exhibit6: GOVrecoverssharplyfromQ2FY21onwards

200000 3500 331

14838 298
14308 3000 278 268
150000 2500 209
9428
2000
100000
1500
109
50000 3319 1000
500
0 0
FY18 FY19 FY20 FY21
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21
Activefooddeliveryretaurants
QuarterlyGOVtrend(|crore)

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 IPOReview|ZomatoLtd ICICIDirectResearch

InvestmentRationale
Strong network effects driven by unique content,
transactionflywheels
The end-to-end food services approach makes Zomato the most uniquefood
services platform globally combining the offerings of platforms such asYelp
(lets user post reviews and rate business), DoorDash (online
platformforfoodorderanddelivery)andOpenTable(restaurantstablereservati
on)in a single mobile app. They collect and curate all structured content
usinga feet-on-street approach, aided by in-house developed technology,
whichhelpsthemdothisinacosteffectivemanner.Theirfocusoncontentattractsa
large number of customers to their platform organically. Their
customersvaluetherichcontentoftherestaurantlistingsontheirplatformandf
urtherenhance the richness of the restaurant listing content by adding
their
ownreviewsandphotostotheplatform,whichleadstoavirtuouscycleofmorene
w customer acquisitions. During FY21, 68% of new customers
wereacquiredorganicallyandnotbypaidadvertisements.
Exhibit5:Flywheeleffect–stageI

These network effects increase the stickiness and loyalty of both customersand
restaurant partners, creating an interlinked virtuous cycle. The chartbelow
reflects the indexed growth in annual GOV by customer cohort, witheach
cohort representing customers who placed their first orderon platformin a
given fiscal year. For example, the cohort for FY18, which includes
allcustomerswhoplacedtheirfirstorderontheplatforminFY18,hascollectively
increased their spends ontheplatformto 2.4xover thepastthreeyears.
Exhibit6:IndexedgrowthinannualGOVbycustomercohort

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 IPOReview|ZomatoLtd ICICIDirectResearch

Consistentgaininmarketshareincompetitivemarket
Food services is a competitive market in India comprising food
deliveryplayers like Zomato and Swiggy, cloud kitchens like Rebel Foods
andbranded food services players (including quick service restaurants
likeDominos, McDonalds and Pizza Hut, among others). Food delivery
playersalso compete with multiple other participants in the food services
industryincluding restaurants, which own and operate their own delivery
fleets,traditionalofflineorderingchannels,suchastake-
outofferingsandphone-
basedordering,localpublications,andothermedia,bothonlineandofflinewher
erestaurantsplacetheiradvertisementstoattractcustomers.

In this competitive market, Zomato has consistently gained market shareover the
last four years to become the category leader in the food
deliveryspaceinIndiainterms
ofgrossordervalue(GOV).Thechartbelowrepresentsyearon-yeargrowthof
Zomatoandtheindustry.
Exhibit7:Marketsharetrend

Source:RHP,ICICIDirectResearch

Focusonuniteconomics
Zomato has made significant investments in marketing and promotions
toaccelerate customer adoption of food delivery and promote their brand.
Allthese investments have resulted in customers coming back to their
platformorganically for repeat purchases. As a result, their advertisement and
salespromotion expenses per order have reduced over time. Further, with
rapidgrowth in the business since 2019, the unit economics of the food
deliverybusinesshasalsoimprovedconsistently.
Exhibit8:Advertisementexpensesas%oftotalincome Exhibit 9: Unit economicsoffood delivery business
Particulars(|) FY20 FY21
Commissioncharges 43.6 62.8
Deliverycharges 15.3 27.0
Deliverycost (52.0) (45.7)
Discounts (21.7) (8.3)
Othercosts (15.7) (15.3)
Profit/(Loss) (30.5) 20.5

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KeyRisks
Competition
According to the RedSeer, in India, Zomato competes with other
fooddelivery companies, such as Swiggy, chain restaurants that have their
ownonline ordering platforms, such as Pizza Hut, McDonalds and
Dominos,cloudkitchenslikeRebelFoods,otherrestaurantsthatownandoperat
etheirown delivery fleets and companies that provide point of sale
solutions
andrestaurantdeliveryservices.Further,demandforafooddeliveryplatformish
ighlysensitivetoarangeoffactors,including,deliverychargeschargedbydeliver
ypartners,incentivesgiventodeliverypartnersandthecommissionscharged
to restaurant partners. New restaurants and existing
restaurantpartnersmaychoosecompetitorsiftheychargelowercommissions,
marketing or other fees, if restaurant partners do not find
company’smarketingandpromotionalserviceseffective.

Emergenceofnewdisrupters
Fooddeliveryplatformsdonotsharecustomerdatawithrestaurants.Hence,
i) restaurants find it difficult to create patronage and ii) food
deliveryplatforms charge a high fee (over 22% take rate), which significantly
impactsprofitability. In order to address the issue of consumer data and
highcommissions, some restaurants are working with SaaS platforms
such asDotPeandThrivetocreateseamlessorderingsystems.

Historyoflosses,likelyhigherspending,goingforward
The company expects its costs to increase over time while losses
maycontinuegivensignificantinvestmentsexpectedtowardsgrowingbusines
s.Higheradvertisingandsalespromotioncostsmaycontinue,goingforward,to
attract customers and restaurant partners to the platform,
developingplatform, including expanding platform’s offerings, developing
or acquiringnew platform features and services, expanding into new
markets in India,andexpandingdeliverypartnernetwork.

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 IPOReview|ZomatoLtd

Managementorganisationchart

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Detailsofshareholdersholdingover1%ormoreofpaid-
upcapitalofcompanybeforeIPO
NameoftheShareholders Sharesheld (In cr) % ofpre-offer equitysharecapital

Info Edge 124.4 18.7%

UberBV 61.2 9.2%
AlipaySingapore 55.9 8.4%
AntfinSingapore 55.0 8.3%
InternetFund 40.2 6.0%
SCIGrowthInvestments 40.1 6.0%
DeepinderGoyal 36.9 5.5%
FoodiebayEmployeesESOPTrust 28.0 4.2%
D1MasterCapitalPartners 25.5 3.8%
MacRitchieInvestments 24.5 3.7%
DunearnInvestments 17.1 2.6%
KoraInvestmentsILLC 17.0 2.5%
VYInvestments 16.8 2.5%
Kora HoldingsII 14.5 2.2%
VYC20 13.9 2.1%
DeliveryHeroSE 10.7 1.6%
SequotiaCapital 8.8 1.3%
GladeBrookPrivateInvestors 8.7 1.3%
Total 599.3 90.0%

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Financialsummary

Exhibit10:Profitandlossstatement |crore Exhibit11:Cashflowstatement |crore

|crore FY18 FY19 FY20 FY21 |crore FY18 FY19 FY20 FY21
Revenue 465.6 1,312.9 2,605.0 1,993.8 PBT (107.4)(1,009.9)(2,385.3) (815.1)
OtherIncome 21.0 85.1 138.0 124.6 Add
TotalIncome 486.6 1,398 2,743 2,118 Depreciation 29.1 43.1 84.2 137.7
%Growth 187% 96% -23% Financecosts 6.3 8.7 12.6 10.1
RMCost - 16.6 108.9 191.9 Other (0.5) (944.8) 163.7 369.5
Employeecost 290.5 600.8 798.9 740.8 CFObeforeWCchanges (72.4)(1,902.9)(2,124.7) (297.8)
Othercost 268.0 2,938.7 4,001.6 1,528.3 ChangesinWC 7.6 187.9 13.1 (738.7)
TotalOperatingcost 558.5 3,556.1 4,909.4 2,461.0 Cashfromoperations (64.8)(1,715.0)(2,111.6)(1,036.5)
EBIDTA (92.9) (2,243) (2,304) (467) Taxpaid 4.6 27.7 32.0 (18.6)
EBIDTA% -20% -171% -88% -23% NetCFO (69.3)(1,742.6)(2,143.6)(1,017.9)
FinanceCost 6.3 8.7 12.6 10.1 PurchaseofAssets (5.3) (45.1) (21.3) (4.8)
Depreciation 29.1 43.1 84.2 137.7 Otherinvestments (822.6)(1,241.6)1,731.4(5,249.7)
PBTbeforeexceptionals (107.4)(2,209.8)(2,263.3) (490.4) Other 7.3 13.3 25.2 10.9
ExceptionalItems - (1,199.9) 122.0 324.8 NetCFfrominvestments (820.6)(1,273.4)1,735.2(5,243.6)
PBT (107.4)(1,009.9)(2,385.3) (815.1) Proceedsfromequity/CCCP 970.0 2,264.4 391.6 6,608.3
Tax - - 1.3 Repaymetofleasedliablity (20.2) (20.8) (30.9) (20.4)
PAT (107.4)(1,009.9)(2,385.3) (816.4) Others (8.5) 885.7 (1.8) (186.0)
MinorityInterest (3.2) (45.3) (18.4) (3.6) NetCF from Financing 941.3 3,129.4 358.9 6,401.9
AttributablePAT (104.1) (964.7)(2,366.9) (812.8) Netincrease/(decrease) 51.4 113.4 (49.5) 140.3
Source:Company,ICICIDirectResearch Source:Company,ICICIDirectResearch

Exhibit12:Balancesheet |crore Exhibit13:Keyratios

|crore FY18 FY19 FY20 FY21 YearendMarch FY18 FY19 FY20 FY21
NonCurrentAssets 264.6 441.0 1,637.0 4,553.0 EPS (0.16) (1.45) (3.55) (1.22)
FixedAssets 24.2 132.0 103.4 83.8 EPS(Postissue) (0.13) (1.23) (3.02) (1.04)
Intangibles 166.9 257.8 1,488.0 1,455.3 BV 1.5 3.3 0.9 10.3
OtherFinancialAssets 68.7 19.4 10.5 3,006.3 Cash per share 0.3 0.3 0.5 0.3
Non-currentAssets 4.7 31.8 35.0 7.6 EBIDTAMargin(in%) -19.9 -170.9 -88.5 -23.4
CurrentAssets 1,109.9 2,971.8 1,263.4 4,150.5 PATMargin(in%) -22.1 -72.2 -87.0 -38.5
Inventories 0.0 2.1 3.7 2.1 RoE(in%) -8.6 -37.1 -333.5 -10.0
Investments 819.7 2,137.3 323.9 2,137.3 RoCE(in%) -10.0 -89.0 -339.6 -7.5
TradeReceivables 26.1 70.3 123.1 70.3 PE(Postissue) NA NA NA
Cash &Bank 208.1 238.7 359.9 238.7 NAEV/EBITDA (501.23) (20.75) (20.20) (99.63)
OtherCurrentAssets 56.1 523.4 452.7 1,702.1 EV/Sales 100.0 35.5 17.9 23.3
TotalAssets 1,374.5 3,412.9 2,900.4 8,703.5 Mcap/Sales 128.1 45.4 22.9 29.9
Equity 1,210.5 2,599.4 709.8 8,098.7 Debt/Equity 0.00 0.00 0.00 0.00
EquityShareCapital 0.03 0.03 0.03 0.03 Debt/Ebitda (0.00) (0.00) (0.00) (0.00)
Instrumentsinequitynature 174.4 243.7 252.4 454.9 CurrentRatio 8.1 4.2 1.8 8.0
OtherEquity 1,036.1 2,355.6 457.4 7,643.8 Quickratio 1.7 0.4 0.7 0.6
MinorityInterest 8.4 (31.4) (6.5) (5.7) DebtorDays 20.4 19.6 17.2 12.9
Non-CurrentLiabilities 19.0 138.8 1,476.2 92.8 CreditorDays 52.8 104.6 37.5 56.3
CurrentLiabilities 136.5 706.1 720.8 517.7 Inventorydays - - - -
Borrowings 0.0 0.0 0.0 0.0
TradePayables 67.4 376.2 267.7 307.7
Other CurrentLiabilities 69.1 329.9 453.2 210.0
TotalLiabilities 1,374.4 3,412.9 2,900.3 8,703.5

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