In a significant move to bolster its financial standing, the Board of Zomato Ltd., the leading food delivery aggregator, has approved raising up to ₹8,500 crore through a Qualified Institutions Placement (QIP). This decision was confirmed during the board meeting held on Tuesday.
The primary objective behind this fundraising initiative is to strengthen the company’s balance sheet. According to Zomato’s recent filing, its cash reserves have dwindled from ₹14,400 crore to approximately ₹10,800 crore, largely due to the ₹2,014 crore allocation for the acquisition of Paytm’s entertainment ticketing business. The company reported a cash balance reduction of ₹1,726 crore from the previous quarter, attributing this decline to funding losses from its quick commerce sector and various equity investments and acquisitions.
While Zomato has transitioned from a loss-making entity at the time of its IPO to a cash-generating business, the company emphasizes the necessity of enhancing its cash reserves amid a competitive landscape and the increased scale of operations. In their statement, Zomato highlighted, “We believe that capital by itself does not give anyone the right to win, and that service quality is the key determinant of success. However, we want to ensure that we are on a level playing field with our competitors, who continue to raise additional capital.”
The company reassured stakeholders that its quick commerce division is operating near adjusted EBITDA break-even and that margins in the food delivery business remain steady. Importantly, Zomato clarified that there are currently no plans for any minority investments or acquisitions.
Additionally, following the successful fundraise, Zomato intends to approach the Reserve Bank of India (RBI) to limit its Foreign Institutional Investment (FII) holding to 49%. As of now, Zomato’s foreign holding stands at 50.48%, with 5.25% categorized as Foreign Direct Investment (FDI) and the remainder as FII.
On the stock market front, shares of Zomato Ltd. closed 3.44% lower on Tuesday at ₹256.55. Despite this drop, the stock has seen impressive growth, more than doubling in value this year with a remarkable 106% increase, and a substantial 135% rise over the past 12 months.
As Zomato embarks on this capital-raising journey, the company aims to solidify its position in a rapidly evolving market, ensuring sustained growth and operational excellence.