Zomato Board to Review Fundraising via QIP Alongside Q2 Results; Stock Drops 2%

Shares of food ordering site Zomato fell over 2% before a board meeting of the company on 22 October that would take up the issue of raising capital through qualified institutional placement. However, the amount of money that the company intends to raise has not been disclosed.

The board will, on the same day, consider and approve the quarterly and year-to-date financial performance for the quarter ending September 30, 2024. In a separate filing with the stock exchange, Zomato said it would consider raising funds by way of issuance of equity shares through QIP or otherwise in accordance with applicable laws and necessary approvals from shareholders by way of a postal ballot.

If approved, the deal will be Zomato's first fundraising since it began trading publicly in 2021. The move comes as rival Swiggy is set to raise $450 million in an IPO.

Consolidated profit for April-June stands at ₹253 crore, nearly ₹2 crore reported for the same period in the previous year as revenue surges by 74% year-over-year to ₹4,206 crore. At the end of the March quarter of the fiscal calendar in FY25, Zomato has cash at hand of ₹12,539 crore (or around $1.5 billion). Food delivery is already profitable, while Blinkit, its quick-commerce business, is at an EBIT loss but within striking distance of breakeven.

Although Zomato stock has risen sharply despite recent decline, rallying 117% year to date and 138% in a year more than the 25% rise of Nifty for the period, there are concerns regarding FII ownership. Foreign institutional investors hold 45.23% of its shares, with foreign ownership at a whopping 50.48% overall. So, once the funds are raised, the foreign ownership will come off.

According to CNBC-TV18, sources have indicated that Zomato may seek approval from the Reserve Bank of India (RBI) to limit foreign institutional investor (FII) shareholding to 49%. This move could help Zomato navigate foreign investment regulations, particularly in light of potential future expansions.

Experts on CNBC-TV18 raised concerns about foreign investment regulations impacting the company's plans, especially regarding any future expansion of Blinkit, Zomato’s quick commerce arm. Anil Talreja of Deloitte India mentioned that this fundraising initiative could provide Zomato's investors with greater clarity. As companies in the consumption sector seek rapid growth due to increasing consumer spending, the fundraise appears to be driven by growth aspirations. Talreja also noted that any future downstream deals involving a foreign-controlled Zomato would be subject to the same foreign direct investment (FDI) regulations.