Key Points
- Zomato’s board has approved a $1 billion share sale to institutional investors.
- This is Zomato’s first major fundraising since the 2021 IPO.
- Swiggy plans to raise $1.4 billion in its IPO next month.
- Zomato aims to lower foreign institutional investor ownership to under 50%.
- This change could help its subsidiary Blinkit move to an inventory-based model.
- Last quarter, Zomato reported a profit of $20.9 million on $570 million in revenue.
- The quick-commerce market in India is expected to surpass $6.5 billion in annual revenues.
Looma News
Zomato announced on Tuesday that its board has given the green light to raise $1 billion through a share sale to institutional investors. This is a significant move for the company, happening just weeks before Swiggy’s IPO.
Swiggy, which has backing from firms like Prosus Ventures and SoftBank, plans to raise about $1.4 billion in its IPO next month. Zomato’s decision to raise funds has surprised many, with some saying it puts pressure on competitors. Jefferies analysts noted this unexpected move, especially since Zomato already has $1.2 billion in cash reserves.
This strategy might help reduce foreign institutional investor ownership in Zomato to below 50%, shifting the company towards a mostly domestic focus. This change could let Blinkit, Zomato’s quick-commerce arm, adopt an inventory model in India. Right now, regulations restrict foreign-owned firms to marketplace operations, which limits their ability to own inventory sold in the country.
Jefferies analysts shared that vendors get about 2% of the gross order value, which helps with operational costs and investment returns. Switching to an inventory model would give Blinkit better control over stock and the ability to take calculated risks in expanding beyond just groceries.
Zomato co-founder and CEO Deepinder Goyal highlighted the need for more capital given the competitive environment and the larger scale of operations. He mentioned, “We believe that capital by itself does not give anyone the right to win, but we want to ensure that we are on a level playing field with our competitors.”
In the quarter ending September, Zomato reported a profit of $20.9 million on revenues of $570 million, marking a 70% year-on-year increase. They face tough competition from Swiggy, Zepto, and BigBasket. Currently, Zomato leads India’s quick-commerce market, which is projected to exceed $6.5 billion in annual revenues. Zepto is also in the process of raising funds, reportedly in talks to secure around $100 million from local investors.
