Zepto’s parent Kiranakart has also filed an application with the National Company Law Tribunal (NCLT) to move its holding company to India from Singapore as part of a plan to become an Indian majority-owned firm over the next 12-18 months, they said.
NCLT Mumbai has started hearing on the issue.
The move comes at a time the quick-commerce sector’s rapid growth has put the spotlight on the operating model and ownership structures of the firms and their dark stores, or mini warehouses, which are critical platforms to deliver products in under 30 minutes. ET reported on September 17 about the government tapping ecommerce executives on the same issue.
Zepto’s latest fundraise from local family offices and high-net-worth individuals (HNIs) for up to $150 million – first reported by ET on October 17 – is expected to be closed by the end of this month.
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Multiple well-known family offices with ecommerce expertise have held talks to invest in the Silicon Valley’s General Catalyst and Nexus Venture Partners-backed firm that’s moving its base to Bengaluru on November 11, people aware of the talks said.
“We are doing this fundraise to start building Indian ownership in the company and deepen our relationships with high quality domestic investors before we kick off an IPO process,” Zepto’s funding presentation, reviewed by ET, said.
Pai declined to comment while emails sent to Cipla and Mankind Pharma family offices didn’t elicit any response on the matter till Monday press time.
Zepto CEO Aadit Palicha also declined to comment.
“There are two core reasons behind this round: first, these family offices and HNIs will bring more confidence to mutual fund investors for the pre-IPO funding as well as improve government confidence in the operating structure,” one of the people mentioned above said. “It’s a process, but the work has begun to significantly increase Indian shareholding.”
Most of the shareholders in Zepto are foreign investors.
“A large Indian shareholding is certainly more favourable in key government circles and among policymakers – especially when there is growing clamour about quick commerce’s impact on kirana and other retailers,” said another person briefed on the discussions around Zepto’s fundraise and aware of the goings-on in the sector.
While quick commerce platforms have said they operate under the marketplace model, increasingly there is more gravitation towards an inventory model. India’s foreign direct investment rules don’t allow foreign-funded online marketplaces to own inventory or control sellers on their platforms.
Also Read | Zomato’s QIP salvo before Swiggy IPO will further fuel quick commerce frenzy
Zomato, which owns Blinkit, is reportedly raising $1 billion through a qualified institutional placement (QIP) which may also see its domestic shareholding go up following the fund infusion.
“Based on our industry interactions, vendors’ take-rate is around 2% of gross order value to compensate for running the operations and earning return on investments (working capital). Inventory model will also allow Blinkit to have tighter control over the inventory and take calculated risks when it comes to launching or scaling up new categories, as it expands well beyond grocery,” Jefferies said in a report released on Friday.
Diluting foreign shareholding won’t be easy still for any of the players in the market.
Zepto has raised over $1 billion in the four months. It is valued at $5 billion following its $340 million fundraise on August 29.
Homecoming
Zepto, a Y Combinator alumnus, is moving its domicile to India linked to its IPO plans besides the fact that a fully domiciled local company may also gain on their optics in terms of job creation and fuelling ecommerce growth here. ET had reported in January saying Zepto is among foreign domiciled startups looking to merge its Indian and overseas units to fully move the parent company to India.
Zepto is working with Deloitte on the migration. “It should close in perhaps six months,” a person aware of Zepto’s domicile movement said.
Groww, another Y Combinator alumnus, closed its India migration on Monday, saying it paid Rs 1,340 crore in tax for the flip. ET has been reporting about the tax outgo for Indian startups who are looking to move domicile here. These include Meesho, Razorpay, Eruditus, Kreditbee, Udaan and others.
Red-hot quick commerce
Meanwhile, Zepto continues to step on the gas on expansion at a time Blinkit and Swiggy Instamart are also doubling down in their existing markets as well as entering new towns. Flipkart Minutes is among the latest entrants expanding while BigBasket is another rival besides JioMart piloting the service, again.
Zepto has now crossed 500 dark stores, people aware of the expansion numbers said. Blinkit and Swiggy Instamart had 639 and 557 dark stores, respectively, as of the June quarter.
“September was the most aggressive month in terms of expansion and spends,” one of the sources said.
“Including monthly burn and the cash capex, they have hit (read: spent) well over $20 million in September,” another person said, underscoring the capital-intensive nature of the industry.
This is one of the factors in Zepto’s annualised gross sales shooting up to $2 billion up from $1.5 billion in May.
“We now have over $1 billion in net cash in the bank,” Zepto told a group of investors as part of the recent fundraise. Motilal Oswal Asset Management Company has already committed about $40 million in this round, sources said.
“As of FY24, the cash and investments in the balance sheet of Zomato and Swiggy stand at $1.5 billion and $735 million, respectively,” a note from Elara Securities said, adding Zepto’s back-to-back fundraising has potentially taken its cash balance to $1.23 billion.
As per a recent Bofa Securities report, the quick commerce market is expected to be $22 billion by 2027 from just under $3 billion in 2023 while a Citi report dated September 10 said quick commerce remained the fastest growing online category with Blinkit and Zepto sustaining high growth rates.