By Ashley Coutinho
Shares of Zomato tanked over 14% on Monday to a new all-time low as the lock-in period for the online food delivery platform’s pre-IPO stock ended.
Zomato’s mandatory lock-in period of one year – applicable to companies that do not have promoters and for those who bought the shares before the IPO – ended on July 23. According to the current norms, the equity share capital held by the company before the IPO is to be locked in for a year from the date of allotment of shares.
On Monday, the stock hit a low of Rs 46 on the BSE, down 14.2% over its previous close, before settling at Rs 47.55 at the end of the day, down 11.4%. In the last one year, the shares have slid 62%, after scaling a lifetime high of Rs 169 on the BSE, a gain of 122% over its issue price of Rs 76.
The stock price is gradually slipping towards the valuation that Aswath Damodaran, a professor of finance at the Stern School of Business at New York University, had pegged ahead of Zomato’s IPO. He had said the shares were worth Rs 41.
“Today’s selling seems to be an overreaction and triggered more by panic selling,” said Siddhartha Khemka, head of research – retail, Motilal Oswal Financial Services.
Khemka believes that the stock could continue to remain under pressure unless the company’s fundamentals improve. “There will be a substantial number of individual investors, including HNIs and millennials, in the company, and as their patience exhausts, we could see some more selling pressure in the days ahead.”
Zomato’s pre-IPO and early investors include the likes of Uber BV (7.8%), Alipay (7.1%), Ant Financial (6.99%), Tiger Global (5.11%), Sequoia Capital (5.10%) and Temasek (2.2%).
Shares of other new-age companies that have low or nil promoter shareholding may come under pressure after the completion of the one-year period post IPO, said market watchers. Paytm, for instance, has zero promoter shareholding and is a loss-making entity as well.
Zomato’s shares have been under pressure for some time now, especially after the company, which is a loss-making entity, announced the acquisition of Blinkit, another loss-making firm.
“We find investors broadly divided on Zomato’s strategy to acquire Blinkit and some even question the merit of foraying into Grocery (hyperlocal). Before going into details, we claim for Zomato that building grocery business will work as a ‘poison pill’. It would need reasonably high investment and hence, cash burn, and is likely to be a significant logistical challenge to execute as well, but still Zomato can’t afford not to do it,” said a June 10 research report by HSBC, which maintained a buy rating on the stock with a target price of Rs 85.
Zomato posted net losses of Rs 360 crore in the last quarter of FY22.