Zomato's strong IPO signals showtime for India's unicorns

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Zomato's strong IPO signals showtime for India's unicorns
A Zomato delivery worker picks up an order from a restaurant. The food delivery company launched its much-anticipated IPO to raise $1.3 billion, India’s biggest this year and the first of a series of high-profile public listings by tech unicorns.Courtesy: Reuters

Food delivery giant's fully subscribed offering is India’s biggest this year and first of a series of high-profile public listings.

Food delivery giant Zomato’s fully subscribed initial public offering (IPO) is yet another vote of confidence for India’s cluster of homegrown unicorns and start-ups that are preparing to go public.

Zomato on Wednesday launched its much-anticipated IPO to raise $1.3 billion, India’s biggest this year and the first of a series of high-profile public listings by tech unicorns. The company counts subsidiaries of Uber and Jack Ma's Ant Group among its existing shareholders and is one of India’s hottest tech start-ups dominating the country’s booming app-based food-delivery space alongside rival Swiggy.

Anchor investors

It got bids for about 749 million shares against 719.2 million shares on offer. Its IPO is set to be India's biggest since March 2020, according to data compiled by Bloomberg, and the largest sale was 40% subscribed on its first day. Zomato allocated about 552 million shares to 186 anchor investors including funds managed by BlackRock Inc. and Fidelity International Ltd. as well as New World Fund and Tiger Global, according to a Tuesday filing, which didn't provide any subscription figures. The shares were sold at 76 rupees each to the anchor investors, the top of a marketed range with a minimum price of 72 rupees. Indian funds got about a third of the anchor allotment.

Zomato’s three-day offering, with shares priced between 72 to 76 rupees per share, is expected to take the company's valuation to $9 billion. Trading in the stock is likely to begin on 27 July.

The red hot IPO debut of Zomato is a strong indication of the flavour of the season. After clocking its busiest first half since at least 2009, India’s IPO market is gearing up for an even bigger boom as a cluster of homegrown startups prepare to go public.

Slew of unicorns

India has been producing unicorns - private companies valued at more than $1 billion, at a rapid pace. Several of them, including mobile payments app Paytm and online beauty retailer Nykaa, are expected to make their stock market debuts in the coming months – at a time when Indian and global markets are at or near record highs.

“Startups that are big enough and mature have outgrown the venture capital and private equity funds' ability to invest,” Manisha Girotra, country head for Moelis & Co, told Bloomberg. “These companies which need larger pool of capital to grow are the ones readying to go to the public market,” she said.

A Paytm agent of the 'Paytm Payments Bank' selling Fastag in Faridabad. India's leading fintech firm is seeking around $3 billion in what could be the country's largest debut ever. Its shareholders this week approved a resolution to sell $1.6 billion worth of new shares.
A Paytm agent of the 'Paytm Payments Bank' selling Fastag in Faridabad. India's leading fintech firm is seeking around $3 billion in what could be the country's largest debut ever. Its shareholders this week approved a resolution to sell $1.6 billion worth of new shares.Courtesy: Reuters

Paytm IPO buzz builds up

Another closely watched initial public offering is the pending deal by digital payment startup Paytm, also backed by Jack Ma's Ant Group. With investors also including SoftBank Group Corp. and Berkshire Hathaway Inc., India's leading fintech firm is seeking around $3 billion in what could be the country's largest debut ever. Its shareholders this week approved a resolution to sell 120 billion rupees ($1.6 billion) of new shares, people familiar with the matter said.

Startups that are big enough and mature have outgrown the venture capital and private equity funds' ability to invest. These companies which need larger pool of capital to grow are the ones readying to go to the public market.
- Manisha Girotra, Moelis & Co

About $5.6 billion has been raised in initial public offerings on Indian stock exchanges so far in 2021, according to data compiled by Bloomberg. UBS Group AG expects the annual tally to be more than double last year's $4.6 billion. Stocks that have debuted this year are up by an average of 62%, buoyed by a liquidity-fueled stock market that has defied one of the world's worst Covid-19 outbreaks.

Already, Zomato and Paytm's popularity among institutional investors is prompting the other unicorns the country has been minting at a rapid pace to consider going public. Among those are also Policybazaar Insurance Web Aggregator Pvt Ltd. Such internet-based consumer companies have become more popular as the pandemic fueled the adoption of digital technologies. The high investor recognition is a boon when they sell stock.

With the surging interest in IPOs, the blistering rally in Indian stocks and the intent of investors to bet on the performance of the Indian economy in the years ahead, it is indeed playtime for India’s rapidly-burgeoning unicorns.

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