Zomato’s decision to raise ₹8,500 crore through a QIP is a strategic move aimed at strengthening its financial position and enhancing its competitive edge
Zomato, one of the biggest food delivery platforms is seeking to raise Rs 8,500 crore (US$1 billion). It is seeking funds through a qualified institutional placement (QIP) of shares.
According to a report, Zomato’s board of directors approved the proposal to raise Rs 8,500 crore via the issuance of equity shares.
The co-founder and CEO Deepinder Goyal mentioned that raising funds through QIP will strengthen the financial position of the company amid rising competition. The company’s cash balance has also decreased from Rs 14,400 crore to Rs 10,800 crore in the three years (between its July 2021 listing to Q2 FY25).
This decline is due to losses in the quick commerce sector along with some investments in equity and acquisitions.
The Need for Fundraising
Zomato’s decision to raise ₹8,500 crore is driven by several strategic considerations:
1. Strengthening the Balance Sheet: Zomato aims to further strengthen its financial position. This move is intended to ensure that the company has sufficient capital to support its growth initiatives and stay competitive.
2. Competitive Landscape: The quick commerce sector has become increasingly competitive. Competitors like Swiggy and Zepto aggressively raising capital and expanding their operations.
Swiggy is preparing for a US$1.2 billion IPO. This can increase competition in the quick commerce sector.
3. Expansion of Quick Commerce: Zomato’s quick commerce unit, Blinkit saw significant growth.
Blinkit reported a 29% year-on-year rise in adjusted revenues, reaching ₹1,156 crore, with GOV climbing 122% to ₹6,132 crore. The fund will support the expansion of Blinkit. This includes increasing the delivery capabilities.
4. Operational Efficiency: The funds raised will also be used to improve operational efficiency and invest in technology.
This includes enhancing the platform’s AI capabilities, optimising logistics, and improving customer experience.
Key Implications
The decision to raise ₹8,500 crore has several key implications for Zomato and the broader market:
1. Enhanced Financial Stability: The increase in cash reserves will provide financial stability to Zomato.
This is particularly important in a highly competitive market where having a strong balance sheet can provide a strategic advantage.
2. Increased Market Confidence: The fundraising effort signifies that Zomato is committed to maintaining its leadership position in the market. This increases the confidence of investors and stakeholders. This potentially leads to a positive impact on the company’s stock price.
3. Accelerated Growth: With additional capital, Zomato can accelerate its growth initiatives, particularly in the quick commerce segment.
This includes expanding its delivery network, improving technology infrastructure, and exploring new business opportunities.
4. Competitive Edge: The additional funds will enable Zomato to compete more effectively with its rivals.
By investing in technology and operational efficiency, Zomato can enhance its service quality and customer satisfaction. This will help it to succeed in the food delivery and quick commerce markets.
5. Regulatory Considerations: Post-fundraising, Zomato plans to apply to the Reserve Bank of India to cap its Foreign Institutional Investment (FII) holding at 49%.
This move is aimed at ensuring compliance with regulatory requirements and maintaining a balanced ownership structure.
Strategic Focus Areas
To leverage the funds effectively, Zomato is likely to focus on several strategic areas:
1. Technology and Innovation: Zomato can invest in advanced technologies. Advanced technologies such as AI and machine learning will enhance the platform’s capabilities and improve operational efficiency.
2. Customer Experience: This will enhance the customer experience by improving delivery times. Further, it will expand the range of products and services and offer personalised recommendations.
3. Sustainability Initiatives: Zomato can invest in sustainable practices, such as eco-friendly packaging. This will reduce the carbon footprint of delivery operations, to align with global sustainability.
Zomato’s decision to raise funds through a QIP is a strategic move aimed at strengthening its financial position and enhancing its competitive edge. By focusing on technology, market expansion, and customer experience, Zomato is well-positioned to capitalise on growth opportunities and maintain its leadership position.
