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Explained: Why Zomato is launching an IPO in the middle of a pandemic

Zomato IPO: While the pandemic has hit the services sector, particularly the hospitality segment, severely, consumer internet companies like Zomato witnessed an improvement in business after the initial lockdown last year.

Online restaurant discovery and food delivery platform Zomato Wednesday filed a draft red-herring prospectus with the Securities and Exchange Board of India (SEBI) for a Rs 8,250 crore initial public offering (IPO), in what is the first major offering by an Indian consumer internet company in several years.

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Why is Zomato proposing an IPO in the middle of the pandemic?

While the pandemic has hit the services sector, particularly the hospitality segment, severely, consumer internet companies like Zomato witnessed an improvement in business after the initial lockdown last year.

According to the company’s filings, the gross order value on its platform fell to Rs 1,093.63 crore for the April-June 2020 quarter from Rs 2,684.91 crore in January-March 2020 quarter. It then rose to Rs 2,981 crore during October-December 2020 quarter, higher than the same quarter in the previous year.

Furthermore, the first nine months of financial year 2020-21 show an improvement in unit economics of Zomato’s business, with commissions and delivery charges increasing compared to 2019-20, and discounts falling greatly.

When will Zomato’s IPO be announced?

Given that its DRHP was filed with SEBI on Wednesday, it will take up to two weeks before the securities watchdog reviews the filings. However, once that process is over, the launch of the offering will depend on market conditions.

Have Indian consumer internet companies gone public before?

Yes. Several Indian companies operating in the consumer internet space have gone public, including Zomato’s investor Info Edge, which will be divesting a part of its stake for Rs 750 crore through this IPO. Other than this, online travel agencies MakeMyTrip.com and yatra.com listed in the US, while e-commerce firms Infibeam and Indiamart, and the most recent listing of Easy Trip Planners went public in India.

Are more Indian startups expected to go public?

Companies including cosmetics firm Nykaa, logistics firm Delhivery, and online insurance aggregator Policybazaar are said to be considering an IPO to raise funds.

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