Sizing up Zomato, India’s food delivery app

Indian food delivery unicorn Zomato is looking to raise US$1.1 billion by going public at an expected valuation of US$6 to US$8 billion. It could well become the first post-2010 founded Indian startup to go public.

But just how big is the company that bought Uber Eats’ Indian operations?

Compared to those of Grab and Uber, Zomato’s valuation is much smaller. But unlike the two companies, it does not have a ride-hailing business.

The Indian company is in the same valuation ballpark as that of London-listed Deliveroo, a UK-headquartered food delivery service.

Both Zomato’s and Grab’s home markets are in the relatively early stages of transitioning to a digital economy: underpenetrated and offering a lot of headroom for growth.

This is reflected in both companies’ high valuation-to-revenue multiple, whereas Deliveroo, which operates in largely matured markets, has been given the lowest valuation-to-revenue multiple by public investors.

Where Zomato lags behind Deliveroo is in terms of what is most commonly known as Gross Merchandise Value, though Zomato calls it Gross Order Value while Deliveroo calls it Gross Transactional Value.

However, the former’s lower numbers are reflective of the developing Indian economy rather than an underlying problem with its business. Grab, though, does well by keeping its delivery business’ GMV at a similar level as that of Deliveroo.

As shown above, the operating loss that each company makes is fairly similar. While Grab and Deliveroo have managed to bring down their operating losses, Zomato’s has remained stagnant over the FY2018-19 and FY2019-20.

Zomato may be smaller than its global peers on several metrics but it has the advantage of being the market leader in a fast-growing and highly underpenetrated market. According to its draft documents filed with the Indian markets’ regulator, the total addressable market (TAM) for food delivery in India in 2025 will be US$110 billion. In comparison, according to a Grab press release earlier this month, the Singaporean company expects the TAM in Southeast Asia to be worth US$180 billion by 2025, though this would include online food delivery, ride-hailing, and digital wallet payments.

If the Indian market reaches anywhere close to such a size, Zomato could well become the darling of Indian stock markets.

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