Zomato readies war chest, to raise 8,500 crore via QIP

MUMBAI: Amid its rival Swiggy‘s upcoming $1.2 billion IPO, which could potentially go up to about $1.4 billion, Zomato is preparing a war chest as it looks to raise up to Rs 8,500 crore ($1 billion) through a qualified institutional placement of shares.
The Gurgaon-based company’s board approved the proposal on Tuesday. Zomato competes with Swiggy in both food delivery and quick commerce segments.While in the local food delivery market, Zomato and Swiggy have a duopoly, the quick commerce space has other players like Zepto and Tata’s BigBasket competing for a share of the consumers’ wallet.
In a letter to shareholders, co-founder and CEO Deepinder Goyal said that the fundraise through a QIP would strengthen Zomato’s balance sheet amid rising competition. The company’s cash balance has reduced from Rs 14,400 crore to Rs 10,800 crore in three years (between its July 2021 listing to Q2 FY25) on the back of funding past quick commerce losses and some equity investments and acquisitions. “While the business is now generating cash (vis-a-vis a loss making business at the time of IPO), we believe that we need to enhance our cash balance given the competitive landscape and the much larger scale of our business today,” Goyal said. While capital alone does not give anyone the “right to win,” the firm wants to ensure that it is on a “level-playing field” with competitors who continue to raise additional capital, Goyal said.
The quick commerce or instant delivery business can be cash-intensive. And as companies in the space expand beyond groceries to deliver a range of items from electronic accessories to toys, beauty products, apparel and occasionally iPhones, players will need enough capital to scale the business.