Zepto Delays IPO, Plans to Raise INR 1,000 Crore+ in Pre-IPO Round

Zepto is now delaying its initial public offering (IPO) plans in order to raise around INR 1,000 crore ($105 million) via a pre-IPO placement. Current investors such as Glade Brook, General Catalyst, Goodwater Capital, and Nexus Venture Partners are anticipated to take part in the investment round.

Companies planning an initial public offering (IPO) in India can use a pre-IPO placement to fund up to 20% of their proposed fresh issue, according to the Securities and Exchange Board of India (SEBI). But the funds that come in via this method can't be included toward the IPO's fresh issue cap. This means that Zepto can only use the public offering to raise the remaining cash.

Decline in Zepto’s Valuation

The initial public offering (IPO) size that Zepto had planned to raise was approximately INR 8,000 crore, but it has since been reduced to between INR 5,000 and 6,000 crore. According to media sources, Zepto was valued between $2.5 billion and $3 billion (Rs 24,000-29,000 crore) after money was contributed. This valuation was primarily based on domestic mutual funds. Consequently, much less than the $5 billion it had hoped to raise.

In its most recent private market fundraising, which took place a little over six months ago, the firm was valued at $7 billion. According to a media estimate, Zepto is anticipated to raise the funds at a valuation of approximately $4-4.2 billion. After deciding that the IPO terms offered by domestic mutual funds were undesirable, the company decided to go with the pre-IPO round.

Zepro’s Cash Burn Rate Giving Tremors to Investors

The company's capital burn was a major issue for incoming investors, particularly the top domestic mutual funds like SBI MF, ICICI Prudential, Kotak, HDFC, and others. A number of investors have voiced their concerns that the company's current rate of expansion is unsustainable. Investors were worried that Zepto would run out of money after three quarters of spending more than INR 900 crore every quarter.

Nevertheless, according to sources, Zepto is optimistic that it will be able to return to the public markets in the next months with a more favourable profitability profile and a higher value. With a current quarterly cash burn of about INR 700 crore, the company should have enough cash on hand to last for at least two more quarters.

Financial Outlook of Zepto

Compared to Swiggy's Instamart's loss of INR 3,500 crore and Blinkit's loss of INR 277 crore, Zepto's adjusted Ebitda loss was filed confidentially for its IPO. Amazon, Flipkart, BigBasket (supported by Tata Digital), and JioMart (owned by Reliance Retail) are among the other competitors in this space. According to the draft prospectus, Zepto's cash balance was INR 5,681 crore as of March 31, 2018.

 According to brokerages, this highlights the necessity for the corporation to seek new funding. This led it to proceed with the initial public offering (IPO) at a lower valuation than initially anticipated. Zepto, which launched in 2021, has investors including General Catalyst, Glade Brook, Motilal Oswal, Lightspeed, and Nexus Venture Partners.