 You're watching News Made Easy. I am Anandya Chakravarty and today I'm going to talk about the Zomato IPO. Now do you know what an IPO is? An IPO is an initial public offering. That is when a company goes to the stock market for the first time, sells some of its share to the average public and to institutional investors. So you and I could have bought this in the IPO and the stock listed at more than 50% premium. That means that if you had bought it at that initial public offering before it hit the markets and paid that 71, 72 rupees, and sold it immediately when it listed, you would have made 50%. That's the premium at which it listed. And it listed at a market value or a market capitalization of more than 1 lakh crore. Making it one of the most successful IPOs in recent history and probably ever. And making it a bigger company than some of the biggest established companies in India. So it's now bigger in market value than Tata Motors, than Indian Oil, than Mahindra and Mahindra. It is a very big company, more than 1 lakh crore in valuation. And what does it do? It basically self-delivers food to you. So the market seems to be believing that India is doing so well and it's going to expand so much the economy that more and more people will get onto these food delivery apps and they will do extremely well. Because remember, Zomato right now is still making a loss. Which is not a negative because these companies have to spend a lot to expand. Zomato, if it decided to not expand, not buy more consumers by giving discounts, maybe it will make a small profit but obviously it would not be as valuable as it is given the expansion that it has had. But it's not just Zomato, lot of people, lot of pro-market economists, those who say that those who are criticizing the economy and the government, I've got it all wrong, look at the IPO space, look at the startup space, not just Zomato, Paytm is likely to list, Flipkart might list and they'll all be mega IPOs, mega listings. So there is money, there are buyers, it's just moved to somewhere else which is startups, which is the e-commerce platform which is the digital platform. And not just through IPOs, not just the public's money, digital platforms in India have raised a lot of money in the last few months. In just the first half of this year, they've raised more than what they raised in all of last year. Billions and billions of dollars have been raised by these platforms. And we have seen some impact on salaries as well. Those were valuable employers such as coders, such as engineers who work on these apps. They are getting good salaries suddenly once again, almost double compared to what they were getting two years ago because money is flowing into this market. But is it a mirror of India's economy? No, it isn't. India's economy is doing badly. Money is flowing into these spaces because it has nowhere else to go. There is money out there. These are the only spaces where there can be expansion where the rich and affluent are going to drive that expansion. And I'm going to tell you more about that but I'm going to just go back a few years to an interview that I did with one of India's top fast food CEOs or one of India's top fast food chains. And I asked him that, okay, I order your pizzas regularly and if I had gone to the West, to the developed world, I would get a lot of healthy options like a pizza with a salad, a thin crust pizza which is made of whole wheat, things that low-fat cheese, you know, pizzas without a center where they put some kind of healthy stuff in there so that if you are health conscious, you can eat that pizza guilt-free. And the answer I got was a wake-up call for me because when was I ordering pizzas? I was ordering pizzas when we had got late and I had not managed to make dinner and I would tell my wife, okay, let's order a pizza because it was relatively cheap. You could order a pizza, enjoy it with maybe a can of cola and you knew it wasn't healthy but okay, it was a one-off and we would do that quite frequently because sometimes we would get late from work and not be able to cook our meals. Now, the point is that the gentleman who I was interviewing, I won't name him, he told me that you are not my customer. There is no market for healthy pizzas in India because you are not my customer. You're not my typical customer. You're the kind of person who if you wanted to really eat out, you would go to a fancy restaurant, you would order a good meal. You're the kind of person who orders 500, 600 rupees pizza for two and that's your special meal. The customers, the core customers, the bulk of our customers are people who order a pizza once or twice a year, maybe on a special occasion, an anniversary or a birthday. It's a special meal for them. They're not like you and they don't want low cheese, low fat, they don't care about it. That is when I realized that for these fast food companies, I was not their target customer at all, the people who earn money weren't their target customers but that was also because at that time they thought that they can expand. They were opening many stores and there's a metric that is used in this space called same store sales. Same store sales means that if there is a store in a particular place, how much is that growing? It's called triple S, same store sales. Is that growing? And at that time in 2013, 14, 15, regularly same store sales were declining. So they had reached their peak. They could only expand their revenues by opening more and more stores. That is the thing where a Zomato came in, it created the space where people could order stuff and they burnt cash. They raised a lot of money, they gave us discounts. If we went to a restaurant, if we were going to spend 500 rupees on a meal, they were giving it to us for 300 rupees. Part of it they were taking from the restaurants themselves as a bigger commission and that commission kept increasing. Initially, of course, they gave incentives to the restaurants as well and part of it was their own money that they raised, which they were burning and giving it to us as discounts, as subsidies. Now that is the model that a Zomato was using and it expected to expand. How many active users does Zomato have right now? Depending on where you look, it is between 10 to 11 million active monthly users who have been using it every month. And if you use active users over an entire year period, then it is about 32 odd million active users. What is the population of India? If you ask someone, a Gangho person about the future of India's economy and especially commerce, they will say 1.4 billion people in India and there is going to be more and more digital penetration. All of them will order online. No, they won't. Simply because in India we have already possibly reached a saturation level when it comes to the buying classes. You look at it, we might have a population of 1.4 billion people, but not more than 5% of that are people who can actually spend money regularly to buy things. And 5% of that is about 70 million. There is an interesting piece that came out a few weeks ago in the Ken. And in that piece, the argument being made based on sources and data from various sources is that the real buying classes are not more than 10 million. So if one looks at those who regularly buy online, whether they spend regularly or not, there are those who buy once a year or twice a year. The argument there is that that is the bulk, that is about 40 million of these 70 million buyers, 40 million buy once or twice a year. Another 20 million buy often, but not that much. They go for cheap deals, they buy things that they would normally go to a shop and buy, but maybe once a month, maybe twice a month. And then there is the cream of 10 million odd people who buy regularly, who buy everything online. They've increasingly shifted online, they don't look at prices, they just want a better experience and they keep moving from one platform to other, whichever gives them a better experience and they don't care about the money there because they are the affluent and the rich, just 10 million people. Look at it. If you look at the number of people who order regularly on Zomato, we don't have the data, but that would not be more than 10 million people. Probably less because families order, so most likely it's less. So the 10 odd million people, the monthly users, on an average they order about three times a month. So you can understand those who order a big bulk amount would be much, much less. And that is the size of the Indian market. This is where all the money is going, the rich and the affluent. These are the people who will go to credit and pay their bills through that. Get a discount because big banks are giving money to credit and credit is giving that money to the rich. The discounts and subsidies that the rich are getting, they are the people who probably buy everything online. They go to the grofer's, they live in big high-rises, they order their fruits and vegetables and stuff at discounted rates from these delivery spaces and they buy everything on Amazon. Again, at discounted rates more often than not. So money from the rich and the affluent is going through the stock market and through investment banks into these companies who in turn are spending that, burning that cash to subsidize the rich. This money is rotating within this rich space and it's giving us an illusion that there's a lot of activity taking place because again the affluent are putting their money into the stock markets. Again, not more than 5% of people in India would be active in the stock market. This is the 5% that we're talking about and within that 5%, not more than 1.5% are the real buyers for whom these startups actually work, to whom these startups cater to because they have the money they're going to spend and all the valuation that these startups like Zomato are getting is because of these rich people. I've argued in the past that COVID has made the rich richer, the share of the GDP has increased, the extreme top, the 1-1.5% and below that people have slid and that is the limit. That is the limit within which they'll play these games and tell you that the economy is doing extremely well because look at what is happening to the startup phase. That is not the true picture of India's economy. Zomato's success is not the India's story. That's the show for today. See you again next week. Keep watching NewsClick and do subscribe to us. Subscribe directly. Pay some money. Support us.