Hint of changing tastes: LIC likely to 'order' an IPO on Zomato?

In move that is raising eyebrows in the world of finance, Life Insurance Corporation of India (LIC), the government-owned behemoth, is said to be considering an investment in Zomato, a food delivery unicorn.

Zomato is launching a ₹9,375 crore initial public offering (IPO) that opens on Wednesday, July 14, and closes on July 16.

According to a Mint report, LIC is looking at buying some shares in the start-up. This would be a first for the life insurance company, which mostly invests its monies in the secondary markets. Even when it did invest in public issues earlier, it was only of state-owned companies getting disinvested.

Investment panel meeting

LIC’s investments committee is set to hold a meeting soon, where it will take the final call on investing in the Zomato IPO, said the report.

In the quarter ended March 31, 2021, LIC’s holdings in publicly listed companies dropped to 3.66% of the market value of 296 companies (those entities where its stake stands at over 1%). This was an all-time low, said Mint, adding that in December 2020, the figure had been 3.7%.

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Experts say the LIC proposal to invest in Zomato may be both a sign of government-owned companies getting more flexible in their investment policies, and the digital economy coming of age with its vast potential for growth.

Zomato, in particular, has gained significantly from the pandemic-led boom in demand for online services. Its valuation surged from around $5.4 billion in January 2021 to over $8 billion in June, said Mint. The lockdown necessitated by the second round of COVID meant more orders for home-deliveries, which helped Zomato and its peers such as Swiggy.

₹9,000-crore IPO particulars

Gurugram-based Zomato, which started out as a restaurant review site and expanded to become a leading food aggregator and deliverer, plans to raise about ₹9,000 crore through a fresh issue of equity shares. The balance ₹375 crore-worth shares come from an offer-for-sale (OFS) of shares by e-commerce major Info Edge, which holds an 18.55% stake in Zomato.

The price band of the IPO is ₹72-76 a share. The issue is pegged as one of the largest by an Indian consumer internet firm (one that caters to individual consumers, and not businesses).

The start-up plans to use about three-fourth of the IPO proceeds for organic growth, which would include expansion plans, technology upgrade, hiring and such, and inorganic growth (acquisitions). The balance 25% will be used for general corporate expenses.

For fiscal 2019-20, Zomato’s revenue doubled to around ₹2,960 crore from the previous fiscal, while its earnings before interest, taxes, depreciation and amortisation (EBITDA) loss was around ₹2,200 crore. This is in line with the trend of most online services firms in the country not being profitable yet.

According to an estimate by research firm CLSA, the online food delivery market is expected to reach $11 billion over the next five years. Zomato, as a key player, is expected to benefit from this.