Teji Mandi Explains: With other businesses at nascent stage, food delivery business remains a major mainstay for Zomato
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India's leading online Food Services platform Zomato's IPO has created quite a buzz in the market. The IPO is set to be open from July 14 to July 16 in a price band of 72-76 per share. The company is looking to accumulate Rs 9,300. The IPO is in the nature of OFS where existing shareholders are looking to sell their stake.

The company is valued at Rs 59,620 crore ahead of listing considering the first-mover advantage that it enjoys in its category. It also warrants scarcity premium as it operates with a duopoly in an underpenetrated market

On the flip side, the company is yet to turn profitable. And, its other businesses apart from food delivery remain at a nascent stage. Hence, the issue has managed to raise a few eyebrows about the hefty valuations, at which it is being quoted.

Businesses Apart from Food Delivery

Though the company is primarily known for its food delivery business, it is present in several verticals across B2C and B2B categories. The B2C category includes two business verticals.

It includes,

1) Food Delivery and

2) Dining Out

Zomato's major business is built upon its food Delivery volumes where the company has become a market leader over the last four years. The food delivery business is also the primary Contributor to total income including delivery charges while other businesses are still at a preliminary stage.

Zomato has one of India’s largest hyperlocal delivery networks with 1.69 lakh active delivery partners and 1.48 lakh active food delivery Restaurants on the platform in March 2021. Zomato charges its restaurant partners commission based on previously agreed rates. Additionally, It also earns revenue from the advertisement of restaurant partners.

Under its dining-out offerings, the customers can search and discover restaurants, read and write customer reviews, book a table and make payments while dining out at restaurants. Zomato is the preferred destination for dining out search and restaurant discovery in India.

Zomato also operates in two other vertices which fall under the B2B category. Its B2B businesses remain at a nascent stage. It includes,

1) Zomato Pro, and

2) Hyperpure.

Zomato Pro is an exclusive paid membership program that unlocks flat percentage discounts for customers at select restaurant partners across both food delivery and dining-out offerings. Pro Restaurant Partners can also market themselves to a select audience through this platform. As of FY21, Zomato had 15 lakh Pro Members and 25,443 Pro Restaurant Partners in India. It earned revenue of Rs 57.5 crore through this segment.

Under the Hyperpure category, Zomato procures ingredients directly from farmers, mills, producers, and processors and supplies them to restaurant partners. Revenue from this segment stood at Rs 200 crore in FY21 with 9,225 restaurant partners across six cities in India.

The Growth Opportunity

The market share of food services in India stood at only 8-9% in CY20 out of the Rs 42.5 lakh crore food consumption market. This is substantially low when compared to global economies like the United States and China which have 45-50% contribution from Food Services respectively.

In major economies, people are left with very little time for home cooking. With long working hours, and expanded traveling time, dining out is a huge trend there. Zomato's business is based on the idea that a similar trend will eventually catch up in India as the economy continues to expand. And, the company is trying to capture this shift in consumer behavior over the long run.

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