IPO-bound Zomato's $100-120 million investment in Grofers enters last lap

IPO-bound Zomato's plans to invest in Grofers has entered the last lap, with an announcement imminent in the next few weeks. People familiar with the development said this will be a $100-120 million investment at a valuation of a billion dollars.

Zomato's investment in the online grocery platform incidentally will coincide with market regulator Sebi's approval for its IPO. It had filed for its Draft Red Herring Prospectus (DRHP) in late April, kicking off one of India's most anticipated internet initial public offerings (IPOs) this year.

Sources said Sebi is likely to issue its final observations in the draft offer document in the next couple of weeks, a prerequisite for any company seeking to offer its shares to the public. Zomato's preliminary roadshows with investors too have got off to a good start, with its public issue evincing a lot of interest from institutional investors.

"The deal between Zomato & Grofers is almost done but it is a financial transaction at this stage. It is very close to completion. A merger might happen at a later stage but not now as it may lead to a delay in Zomato's IPO launch," a source familiar with the development told Moneycontrol.

Interestingly, Grofers co-founder Saurabh Kumar announced on June 18th, 2021 that he will be leaving the startup, eight years after building it with founder and CEO Albinder Dhindsa. Although Saurabh is giving up his operational roles in the company, he will remain a shareholder on the board.

Saurabh and Albinder together own less than 8 percent in a startup, with the majority currently held by SoftBank. Other investors include Tiger Global, Sequoia Capital, and DST Global. Sequoia is also an early investor in Zomato.

In response to queries from Moneycontrol, a Grofers spokesperson said, "We don't comment on speculation. Our focus at present is to do our best to serve consumers at this time of the country's need; while we continue to build technology that empowers the grocery ecosystem to make products more affordable and accessible for millions of Indian households."

Zomato did not respond to queries.

This is not the first time Zomato and Grofers have tried to forge a deal. Last year, they were in talks for an all-stock merger that fell through. They started talking again this year, at a time when the online grocery space is seeing a lot of growth.

Albinder and Zomato founder and CEO Deepinder Goyal also go back a long way. Both of them studied at IIT-Delhi between the years 2000-2005. He also headed Zomato's international operations for two years before starting up Grofers. Albinder's wife Aakriti Chopra, one of Zomato's early employees who currently works as Chief People Officer, was recently elevated as co-founder, in recognition of her contributions to the company.

While Zomato has been focused on the food delivery segment, its arch-rival Swiggy is betting big on its hyperlocal delivery service Swiggy Genie, where it competes with Dunzo, Flipkart. Amazon and its online grocery service Swiggy Instamart, where it's up against players such as Flipkart, Amazon, BigBasket, JioMart, and Grofers.

Grofers was founded in 2014 by Dhindsa and SK- as Saurabh is known by company insiders and friends and was among a bunch of hyperlocal startups at the time. Most of them, including PepperTap and LocalBanya, shut down after the 2015 funding frenzy. Grofers and Tata-owned BigBasket are the largest players in the space currently, with Swiggy's Instamart, Flipkart, and Amazon too stepping up investments here as more people turned online for their grocery needs amidst the pandemic-induced lockdowns.

For the year 2019-20, Grofers posted a net loss of Rs 637 crore compared to Rs 448 crore in the previous year, Its revenue for the same period grew to Rs 177 crore compared to Rs 84 crore in the previous year.

Zomato's plans to buy a minority stake in Grofers was first reported by The Economic Times in May, 2021