Zomato received about 35 times more bids from anchor investors than it intended to sell in its blockbuster IPO. The Gurgaon-based firm received bids worth Rs1.5 trillion from large funds compared with the 42 billion rupees offered
MUMBAI: Shares of food delivery startup, Zomato Ltd., slumped nearly 9% on Monday, the day the mandatory one-month lock-in period for anchor investors ended, wiping out over $1.25 billion in investor wealth.
During the day, the stock had hit a low of Rs124.90 on the BSE, down as much as 10.3%. The scrip settled at ₹127, down 8.8% from its previous close.
Zomato had received about 35 times more bids from anchor investors than it intended to sell in its blockbuster initial public offering (IPO). The Gurgaon-based firm received bids worth Rs1.5 trillion from large funds compared with the Rs42 billion offered, Bloomberg had reported. It raised a little over ₹4,196 crore from anchor investors ahead of its initial share sale.
Anchor investors are essentially brought in to boost investor confidence and gauge the demand for an IPO in the market.
Anchor investors are QIBs who agree to buy the company’s shares at a particular price by applying to invest at least ₹10 crore in the IPO before it opens, according to the listing norms of the Securities and Exchange Board of India (Sebi). As much as 50% of the shares of an IPO can be offered to QIBs. Of this, up to 60% can be allocated to anchor investors. One-third of this is reserved for mutual funds.
Allocation to anchor investors is done on a discretionary basis for IPOs above ₹250 crore. There is no cap on the number of anchor investors and additional 10 such investors are allowed for every additional ₹250 crore worth of issue size, in which ₹5 crore is minimum allotment required for each such investor.
There is a lock-in of 30 days on shares for every anchor investor, according to Sebi.
Meanwhile, brokerage firm ICICI Securities has initiated a buy call on the firm with a target price of Rs220. It said the target price was based on expectations of 22 million Indians ordering four times a month by fiscal 2025.
"This is a low bar given that India ‘today’ has ~35mn / 114mn credit card / Paytm transacting users who likely fall in the super user category / user funnel. We value the stock at 55x 2-year forward P/E, in-line with a median consumer discretionary stock", ICICI Securities said in a note.
The brokerage firm expects 46-33% revenue CAGR over next five to ten years, given multiple macro and industry tailwinds.
“Despite limited operational history and network effect, food-tech adoption at 16% in the Next-500 towns (I-Sec est.) is encouraging. With supply interventions and stronger network effect, we see scope for further increase in adoption also given the lower restaurant density here. However, as offices resume and corporate employees return to Top-20 cities, any change in the dynamic of these markets (where Zomato leads Swiggy in market share) needs to be closely watched," ICICI Securities added.
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