Zomato IPO: How do India’s food delivery players stack up against their global peers?


Seen as a watershed for India’s venture capital and start-up ecosystem, Zomato’s initial public offering (IPO) of 9,375 crore will be open for subscription on July 14 and is expected to generate an exceptional response.

Zomato, which is present in 525 cities in India with an average of 6.8 million customers ordering food each month, is valued at $ 8 billion, or just under Rs 60,000 crore at the top end. from the price range of Rs 72-76.

READ ALSO: High valuation of $ 8 billion makes Zomato’s offer less appetizing

While most analysts have already raised concerns about the IPO’s premium price (roughly 11 times its enterprise value compared to fiscal year 24 sales) that may leave very little in the way of At the investor table after the listing, Zomato isn’t the only player around the world that is still Ebitda (earnings before interest, taxes, and negative depreciation), suggests a Jefferies report. Back home, while Swiggy is Ebitda negative in addition to Zomato, Uber Eats, headquartered in San Francisco, and Germany-based Delivery Hero, according to Jefferies’ note, are also sailing in the same boat.

Simply put, profit before interest and taxes (EBIT) is an indicator of a company’s profitability and is calculated as revenue minus expenses excluding taxes and interest. EBIT is also referred to as operating profit, operating profit, and earnings before interest and taxes.

Growth opportunity

While there are a lot of questions in investors’ minds regarding medium-term growth, profitability and the use of cash, Fear of Running Out (FOMO) is expected to keep excitement high, analysts say. .

With $ 1.5-2 billion in annual GMV, India’s aggregators are quite small compared to their global peers. Average order values ​​(AOV) are quite low in developing countries where Zomato, Swiggy, ifood (Brazil), Meituan (China) and Delivery Hero are present, the report suggests.

GMV comparison

FY21 activities were affected due to the pandemic, but the recovery was steady. The gross value of food delivery (GOV) orders for FY21 ended at $ 1.3 billion from $ 1.5 billion for FY20, with year-over-year growth over the course of FY21. The pandemic resulted in a sharp increase in the average order value (AOV) as well as higher delivery costs in FY21, resulting in a positive contribution margin in FY21.

READ ALSO: Zomato’s IPO, a turning point for the start-up ecosystem, according to experts



Having said that, there is ample scope for growth in the future. Foodservice services represent a $ 65 billion market opportunity in India, according to Redseer, growing 9% per year and likely to reach $ 110 billion by 2025. In the foodservice market of $ 65 billion, online delivery is only a small subset with a market size of $ 4.2 billion (6-7 percent). Therefore, there is also an opportunity for online delivery to gain a share in the growing foodservice pie. It is estimated that only 9 percent of Indian internet users currently order food online, compared to 36 percent in the United States and 50 percent in China.

“Foodservice in India is severely under-penetrated compared to other countries. This is evident in the fact that while food consumption expenditure in India amounts to $ 670 billion per year, only around 10% is spent on restaurant food, while the rest is on home cooked meals. House. In contrast, 54% of food consumption is spent in the United States and 58% in China is on restaurant food, ”the Jefferies note said.

“We are positive in the food technology market and forecast a revenue potential of $ 6.5 billion by fiscal year 30F and attribute a market value of $ 18.5 billion to the food delivery market. food. This assumes: 1) 20% CAGR among monthly transaction users, to around 87 million, 2) order frequency improves to around 5.5 (from 4 in FY21F) and 3) average CAGR order value of nearly 2%, which should translate to a GMV of around $ 33 billion by FY30F, assuming a stable 20% take rate, implying a revenue pool of $ 6.5 billion . We assign a sell multiple of around 7x and a discount factor of around 14% to arrive at a market value of $ 18.5 billion, ”Nomura’s Rishit Parikh wrote in a July 10 note.

Annual orders

Annual orders

Average order value

Average order value

Income

Income

Ebitda

Ebitda

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