Zomato Raises $1 Billion Ahead of Rival Swiggy's IPO

A Strategic Move Amidst the Quick Commerce Battle

India's leading food delivery platform, Zomato, has announced plans to raise $1 billion through a qualified institutions placement. This marks their first major fundraising since their 2021 IPO, adding fuel to the competitive quick commerce landscape in India.

Zomato's Move: A Bold Play

This fundraising comes just weeks before Zomato's primary rival, Swiggy, is set to make its public debut. Swiggy, backed by notable investors like Prosus Ventures, SoftBank, and Accel, is aiming to raise $1.4 billion through its IPO next month.

Zomato's move, described by an investor as 'sucking the air out of the room' for competitors, has taken the industry by surprise. Analysts have deemed the capital raise 'unexpected,' considering Zomato already holds $1.2 billion in its reserves. The move is strategically aimed at reducing foreign institutional ownership to below 50%, transforming Zomato into a 'domestic' company.

The Importance of Majority Domestic Ownership

This shift in ownership structure is crucial for Zomato's quick commerce subsidiary, Blinkit. Indian law mandates that foreign-owned companies operate as marketplaces, prohibiting them from owning inventory they sell within the country. However, a majority domestic ownership allows Blinkit to adopt the inventory model, granting them tighter control over their offerings and the ability to take calculated risks in expanding beyond groceries.

As per industry insights, vendors charge around 2% of the Gross Order Value (GOV) to compensate for operational costs and return on investments. The inventory model empowers Blinkit to manage its inventory more effectively and strategically scale up new product categories.

Zomato's CEO Highlights Competitive Landscape

Zomato's co-founder and chief executive, Deepinder Goyal, explained in a shareholder letter that the company requires additional capital due to the intense competition and the substantial growth of their business. While emphasizing that capital alone doesn't guarantee success, he stressed the need for a level playing field with competitors who continuously raise additional capital.

Summary

• Zomato is raising $1 billion ahead of Swiggy's IPO, intensifying the quick commerce rivalry in India.
• The move is unexpected, given Zomato's existing $1.2 billion reserves and is aimed at lowering foreign ownership below 50% to become a domestic company.
• This change allows Blinkit, Zomato's quick commerce arm, to adopt an inventory model, granting greater control and risk management capabilities.
• Zomato's CEO highlights the competitive landscape and the need for a level playing field with competitors actively raising capital.