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Zomato slips 11% to record low as IPO lock-in ends

There has been a slowdown in the availability of easy money that had helped firms such as Zomato grow at a tremendous pace. (Photo: Mint)Premium
There has been a slowdown in the availability of easy money that had helped firms such as Zomato grow at a tremendous pace. (Photo: Mint)

Shares of food delivery service provider Zomato Ltd plunged 11.4% to close at a record low of 47.55 on Monday, after the one-year lock-in period for investors who bought shares in the company’s initial public offering (IPO) ended on 23 July.

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MUMBAI : Shares of food delivery service provider Zomato Ltd plunged 11.4% to close at a record low of 47.55 on Monday, after the one-year lock-in period for investors who bought shares in the company’s initial public offering (IPO) ended on 23 July.

The end of the lock-in period increases the supply of tradeable Zomato shares in the market.

Investor appetite
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Investor appetite

During the day, the Zomato stock hit a low of 46.

Zomato raised 9,375 crore through an IPO at an issue price of 76 per share and listed on the stock exchanges on 23 July 2021.

The stock hit a record 159.75 in November 2021 and has been falling since then, amid a global carnage in tech stocks, led by rising interest rates and foreign investors dumping emerging market equities, leading to a sharp slowdown in the availability of easy money that had helped tech companies grow at a tremendous pace.

According to analysts’ estimates, around 78% of Zomato shares were under the 12-month lock-in period as per Sebi norms. With the lock-in ending, these shareholders are now free to sell their stock in the open market when they desire, and this has led to an anticipation of selling pressure on the stock in the coming days.

Top shareholders of Zomato include investors such as Info Edge, Uber, Alipay Singapore Holding, Antfin Singapore Holding, Sequoia Capital, Tiger Global and Temasek. Apart from Info Edge, none of the other shareholders had sold their shares in the IPO of the company.

At current levels, many shareholders may not want to sell large holdings in the company, but analysts believe that any upward movement in the stock will be limited as shareholders would look to take advantage of such upswings and exit.

To be sure, despite the correction in Zomato’s stock price, several brokerages have an overweight rating on the stock.

Last month, JP Morgan reiterated its overweight stance on Zomato and even increased the price target to 115 per share, following its acquisition of quick commerce startup Blinkit.

“We believe this is strategically sound and since our upgrade in January 2022, we have believed this to be a natural adjacency for Zomato," JP Morgan said.

“This helps Zomato double down on its convenience proposition, expanding user frequency, amortizing its CAC (customer acquisition cost) and delivery infrastructure. Zomato+Blinkit will have pipes to the most frequent and evolved internet consumers in India that are easier to monetize with convenience charges and advertising than other B2C (business-to-consumer) internet categories. This drives up our FY23/24/25 revenues by 10/18/19%, drives out breakeven by three quarters to 1QFY25 and drives a cut to FY25 adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization) by 56%, but increases our DCF (discounted cash flow)-based PT to 115 (from 110). Reiterate OW (overweight)," the brokerage said in a 27 June report.

Analysts at JM Financial, too, have a buy rating on the stock and a price target of 115.

“We believe Zomato is well-placed to gain from robust industry tailwinds for hyperlocal delivery services. However, the volatile market environment, relatively cheap valuations of global peers, investor focus on profitable names and the lock-in expiry for the company’s pre-IPO investors in July, may limit the near-term upside for the stock," the brokerage said.

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