Zomato, the food delivery giant, announced in a BSE filing that it is considering a fresh round of funding through a qualified institutional placement (QIP). While the fund size and objective remain undisclosed, the company’s board will meet on October 22 to finalize the details.
This potential fundraising move marks Zomato’s first since its IPO in July 2021, and it comes at a time when competition in the quick commerce sector is heating up. Rival Swiggy is gearing up for its own IPO in November, with plans to raise USD 602 million, up from the previously proposed USD 450 million. Both Swiggy and Zepto are expected to have cash balances of USD 1 billion and USD 1.3 billion, respectively, post-IPO, aligning closely with Zomato’s current cash reserves of around Rs. 12,241 crore as of June 2024.
Industry analysts suggest that Zomato’s push for fresh capital is aimed at bolstering its position in the fast-growing quick commerce space, where large e-commerce players have also entered the fray. According to Karan Taurani of Elara Capital, Zomato could be looking to amass a larger cash balance than its competitors to strengthen its footing as the battle for market share intensifies.
Zomato’s Blinkit division, a key player in the quick commerce segment, has ambitious plans to scale up, with 2,000 dark stores slated to open by the end of 2026. Blinkit CEO Albinder Dhindsa has outlined the company’s strategy, emphasizing the importance of efficient supply chain management and team-building in reaching this target.
The move has sparked curiosity among market watchers. Jayant Mundhra, a market analyst, pointed out that the funds could significantly boost Zomato’s ‘other income’, which has been a major contributor to the company’s profits. In Q1 FY25, Zomato reported earning Rs. 236 crores from other income, surpassing its operating income.
Analysts remain positive about Zomato’s prospects. While Swiggy’s upcoming IPO could shake up the competitive landscape, Zomato’s strong execution track record and solid balance sheet position it well for future growth. Shobit Singhal, Research Analyst at Anand Rathi Institutional Equities, noted that Swiggy’s premium in the grey market could take a 5-10% hit if Zomato’s fundraise is substantial.
With the quick commerce battle intensifying, this fundraise is expected to give Zomato the cushion it needs to compete effectively, especially in the wake of rising competition from new entrants and rival platforms.