Summarize

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Zomato, the food delivery giant, is set to raise ₹8,500 crore to boost its cash balance and stay competitive in the rapidly evolving market.
Despite a drop in cash balance due to past investments, the company is now cash positive and emphasizes that quality service, not just capital, is key to success.
With its foreign holding at 50.48% and shares doubling in value this year, Zomato plans to cap its Foreign Institutional Investment at 49% post-fundraising.

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Zomato's cash balance has dipped from ₹14,400 crore to about ₹10,800 crore

Zomato board approves ₹8,500 crore fundraise via QIP

By Mudit Dube

Oct 22, 2024

05:08 pm

What's the story

Zomato's board has approved a plan to raise up to ₹8,500 crore via a qualified institutions placement (QIP). The decision was taken at the end of its board meeting earlier today. The move comes as part of bolstering the company's balance sheet, according to a regulatory filing. The announcement comes after Zomato revealed its cash reserves have fallen by ₹1,726 crore from the last quarter.

Financial shift

Zomato's cash balance dips due to acquisitions and investments

The drop in Zomato's cash balance from ₹14,400 crore to about ₹10,800 crore was mainly due to funding past quick commerce losses and some equity investments and acquisitions. The company said while the business is now generating cash, it believes there's a need to enhance its cash balance given the competitive landscape and the much larger scale of our business today.

Market competition

Zomato's strategy to compete in the market

Zomato stressed that capital alone doesn't mean success, and quality of service is a major factor of success. "We want to ensure that we are on a level playing field with our competitors, who continue to raise additional capital," the company said in its statement. This move is part of Zomato's strategy to remain competitive in the fast-changing food delivery space.

Business outlook

Zomato's business performance and future plans

Zomato also said its quick commerce business is running at near adjusted EBITDA break-even, and food delivery business margins remain stable. The company also clarified that there are no plans for any minority investments or acquisitions as of now. After the fund raising, Zomato is likely to apply to the Reserve Bank of India to cap its Foreign Institutional Investment (FII) holding at 49%.

Stock performance

Zomato's foreign holding and stock performance

Currently, Zomato's foreign holding is at 50.48%, with 5.25% under FDI and the rest under FII. The company's shares closed 3.44% lower on Tuesday at ₹256.55, but have more than doubled in value this year with 106% gains. In the past 12 months, the stock has risen as much as 135%.