Zomato, a key player in India’s food delivery and quick-commerce space, has raised $1 billion through a Qualified Institutional Placement (QIP), marking its first major fundraising since its Initial Public Offering (IPO) in 2021.
This financial maneuver is a pivotal step for the company, aimed at bolstering its growth and ensuring regulatory compliance, while positioning itself to stay competitive in the evolving market landscape. The details of the fundraise, coupled with Zomato’s strategic initiatives and recent controversies, provide a comprehensive view of the company’s trajectory.
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The $1 billion was secured by issuing approximately 336.5 million shares priced at ₹252.62 ($2.99) each. This capital influx not only strengthens Zomato’s financial position but also reclassifies it as a domestic company by reducing foreign ownership below 50%.
This reclassification is significant as it allows Blinkit, Zomato’s quick-commerce subsidiary, to operate under an inventory-led model, a structure that is restricted to domestically owned firms under Indian law.
Understanding Zomato and how it operates
Founded in 2008 by Deepinder Goyal and Pankaj Chaddah, Zomato began as a restaurant discovery and review platform, eventually transforming into a leading food delivery service. Its operations are centered around connecting users to restaurants for food delivery, dining services, and reviews, alongside its burgeoning quick-commerce segment powered by Blinkit.
Zomato’s success hinges on its ability to streamline logistics, optimise delivery networks, and leverage data analytics to offer personalised recommendations.
The company’s approach to quick commerce, facilitated through Blinkit, caters to the rising demand for rapid delivery of groceries and essentials. By employing advanced technology and robust logistical frameworks, Zomato ensures operational efficiency, scalability, and a superior user experience.
With millions of active monthly users, Zomato has become one of India’s most popular food delivery apps. Its extensive user base includes urban and semi-urban consumers, a testament to the company’s widespread appeal and adaptability. Zomato Gold, the company’s subscription service, further enhances user engagement by offering exclusive deals and discounts.
The platform also boasts partnerships with thousands of restaurants and an extensive network of delivery personnel, creating an ecosystem that supports local businesses while providing convenience to consumers. This broad network has been instrumental in sustaining Zomato’s growth and market leadership.
Recent developments
In the second quarter of 2024, Zomato’s net profit surged by an impressive 389%, reaching ₹176 crore, while its revenue grew by 68% to ₹4,799 crore. This robust financial performance underscores the effectiveness of its operational strategies and its ability to adapt to market trends. The reclassification as a domestic entity further enhances its operational flexibility, particularly for Blinkit, which can now adopt an inventory-led model.
In June 2024, Zomato revealed that it was in discussions to acquire Paytm’s ticketing unit, a move aimed at diversifying its portfolio and expanding its revenue streams. While the details of the acquisition are yet to be finalised, such strategic expansions reflect Zomato’s ambition to consolidate its position in the tech-driven consumer services market.
Despite its successes, Zomato has not been without controversy. In November 2024, a job advertisement for a Chief of Staff role sparked backlash for requiring a ₹2 million application fee. While the company highlighted the position’s lucrative ₹5 million future salary, the ad drew criticism for being exclusionary and sparked a debate on LinkedIn about fairness in hiring practices.
Zomato has also faced scrutiny from the Competition Commission of India (CCI), which alleged that the company and its competitor Swiggy violated competition laws. Zomato denied these accusations, asserting its compliance with legal standards. However, the investigation impacted its stock value, which saw a 3% decline following the CCI’s findings.
Other challenges include recurring protests from delivery partners over pay structures and working conditions, raising questions about the sustainability of its gig-worker model. Additionally, Zomato’s data security practices have come under the spotlight, particularly after a data breach in 2021 that exposed user details and highlighted vulnerabilities in its systems.
A strategic shift in focus
The decision to raise $1 billion through QIP reflects Zomato’s intent to strengthen its financial and operational position while adapting to regulatory requirements. This shift towards being a domestically owned entity aligns with India’s evolving legal landscape, allowing the company to explore new business models and opportunities.
The capital raised is expected to be deployed for various strategic initiatives, including expanding Zomato’s market presence, enhancing technological capabilities, and exploring potential acquisitions. By leveraging its strengthened financial position, the company aims to remain agile in a highly competitive market.
What do we think about this recent update
Zomato’s latest fundraise underscores its commitment to long-term growth and adaptability in an ever-evolving industry. The infusion of $1 billion equips the company to explore new opportunities, navigate regulatory landscapes, and address operational challenges. However, sustaining its market leadership will require Zomato to tackle controversies head-on, ensure equitable treatment for stakeholders, and maintain transparency in its operations.
While the company’s strategic decisions, including its reclassification and potential acquisitions, highlight its proactive approach, the competitive landscape remains intense. Rivals like Swiggy and emerging players in the quick-commerce space continue to challenge Zomato’s dominance.
In the long term, Zomato’s success will hinge on its ability to innovate, optimise operations, and balance profitability with social responsibility. As it moves forward, the company’s strategic focus and operational resilience will determine its standing in India’s rapidly growing food tech and quick-commerce markets.
