Decoding online meat retailer Zappfresh’s SME IPO and strategy as it targets up to 4-fold revenue growth

Despite growth concerns in the sector, Zappfresh, a brand owned by DSM Fresh Foods Ltd, is aiming for a three to four-fold increase in revenue in the next three years, founder Deepanshu Manchanda said. How does it plan on doing that? By expanding its presence in the country and going overseas, setting up offline outlets, and through acquisitions.

The company, which started delivering meat online in 2015, has stayed relatively smaller than rivals Licious and Freshtohome. As its competitors work on building efficiency on top of growth, it will benefit companies that can pick up that growth and help Zappfresh build scale, according to Manchanda.

The startup backed by investors including SIDBI Trustee Company Ltd, Amit Burman Family Office (through Gyan Enterprises) and AH Ventures, filed its Draft Red Herring Prospectus with the market regulator for listing on the SME platform of the BSE late last month.

The IPO will consist of a fresh sale of 5.9 million shares with a face value of ₹10. There is no offer-for-sale component. The company claims to be the first direct-to-consumer (D2C) food startup to be going public.

Zappfresh is the only profitable company in the space, with earnings before interest, taxes, depreciation and amortisation (EBITDA) of ₹9.58 crore in FY24. It posted an EBITDA of ₹3.4 crore in FY23. Revenue increased to ₹90 crore in FY24 from ₹56 crore in FY23. 

“As a ₹100 crore business running profitably, which can grow maybe 10-15% every year, it's a decent enough business as of now to get an IPO," said Satish Meena, an advisor at Datum Intelligence.

Also Read: Licious wants to cross the road. But it risks getting cooked.

Moreover, there is a lack of appetite among private capital investors for the meat market at the moment, making an SME IPO a viable choice for the company, said Meena.

“The bigger companies promised something to investors in terms of growth, but they are nowhere near to the growth. As growth is becoming difficult, other companies are also finding it difficult to raise private capital because there is not much interest. It's not that they can't raise it but the value they will get… is going to be less," he added.

Manchanda didn't comment on why the company is going for an IPO instead of tapping the private capital market.

Licious, which expected revenue to surge 120% in FY23 over the previous year to ₹1,500 crore after 65% growth in FY22, grew just 10% to ₹748 crore. The online meat retailer’s loss widened to ₹500 crore in FY23 from ₹485 crore.

FreshtoHome’s revenue was ₹110 crore in FY23 and it made a loss of ₹409.5 crore.

The size of the online meat industry was ₹2,500-3,000 crore in 2023, according to Meena,

Expansion plans

The company’s revenue comes largely from New Delhi and Haryana. It entered Bengaluru last year and Mumbai last month and is now eyeing the southern pie, which it has missed on.

“We were consciously looking at not rapidly expanding and falling on our face later. With that perspective, we wanted to make one city-by-city kind of a progression, but we are all about new markets now. A lot of our new growth is going to come from new markets. That's the onus because 90-95% of the market is consuming meat in the south," Manchanda said.

While the company has been catering to institutions such as restaurants, it is now looking at offline retail by standardising conventional meat shops with trained staff, certified products and better packaging and hygiene.

“This is an initiative wherein traditional meat shops would be converted into exclusive ‘Zappfresh Stores.’ This comprehensive strategy is to tap into the currently unorganised meat market," the company said in its DRHP.

Also Read: For D2C brands, Bertelsmann sees quick commerce as the next big growth driver

The company also has plans to launch its business globally.

“It won’t necessarily be exports but what we are looking at is overseas expansion in different ways," Manchanda said, without providing details.

In terms of categories, the company, which has been in the fresh meat category, is looking to get into frozen meat, according to the founder.

“It is not a very large market, but there is growth happening at a certain scale and there are a lot of players also in that category. Unless there is a certain differentiation one is able to create, it is a very tough category to crack. We are taking our own time to do our proper R&D and then make a call on how we can evaluate frozen," said Manchanda.

Acquisition path

The online retailer, which acquired Dr. Meat and Bonsaro in the past year, is bullish on acquisitions to drive growth. Both the acquisitions helped Zappfresh to enter new geographies.

“One thing which I learned was that we need to do a collaborative approach. We don't think that there is any way you can singularly become the big daddy in the category and that's because of the sheer size and also the nature of the business. It is not a marketplace, one-winner-take-all market, making it important to build a large impact by consolidation in the category," he said.

Also Read: Amazon fund leads $104 mn investment in FreshToHome

The company will actively eye acquisitions in agri-tech, digitisation, financial inclusion and overseas expansion, according to Manchanda.

As Zappfresh goes public, its listing may become a benchmark for other companies in the sector seeking to raise funds.

“The IPO market is hot right now and raising public capital is much easier. The other ecommerce companies’ stocks are doing well so investors have seen that this sector is giving better growth as compared to other businesses. Once you have a benchmark, if the stock market gives them reward, it will be much easier for raising other capital also," said Meena.