Zomato’s shares fell to under Rs 50, an all-time low, on Monday (July 25), as the year-long lock-in period for its pre initial public offering (IPO) ended on Friday (July 22). In the early hours of trading, the company’s scrip fell to as low as Rs 46, nearly 40 per cent down from its issue price of Rs 76.
Why did Zomato’s stock see this massive sell-off?
On Friday, the mandatory lock-in for promoters, employees, and other shareholders who bought Zomato’s stock before its IPO, ended. This means that these shareholders are now free to sell their shares — which, according to analysts, is the major reason behind Monday’s massive sell-off.
According to rules laid down by the Securities and Exchange Board of India (SEBI), if a company has no identifiable promoters, then its pre-IPO shares are locked in for a period of one year. “Following the lock-in period of one year, the pre-offer shareholders may sell their shareholding in our company, depending on market conditions and their investment horizon. Further, any perception by investors that such sales might occur could additionally affect the trading price of the equity shares,” Zomato said in a Red Herring Prospectus before its IPO.
At the time of reporting this explainer, the company’s market cap stood at Rs 37,911 crore, well below its valuation as a private company, when it was valued at around Rs 43,200 crore. At its last peak, the company’s stock was trading at Rs 169.10 apiece with a market capitalisation of Rs 1.33 lakh crore — meaning more than Rs 95,000 crore of investor wealth had been wiped out by the time of publishing.
The last time the company’s stock took such a severe beating was after its acquisition of quick commerce startup Blinkit (formerly Grofers) last month. In the subsequent four sessions, Zomato’s stock had plunged by more than 20 per cent.
How are other startups’ stocks performing?
Zomato was the first major startup to list on the bourses in July last year, and had seen a blockbuster opening after its shares were listed at Rs 116 apiece — a premium of 53 per cent over the IPO price of Rs 76. However, the stock’s value has consistently fallen after it attained its peak of Rs 169.10 apiece in November last year.
Other startups that followed Zomato to the bourses have also seen a steep correction in their stock prices since listing. Paytm, which had an issue price of Rs 2,150, was trading at Rs 740.35 at the time of publishing — a decline of more than 65 per cent.
E-commerce startup Nykaa, which had an issue price of Rs 1,125 per share, saw a bumper listing as its shares were up 78 per cent when it was first listed. However, since then, the value of the share has fallen, with its scrip trading at Rs 1,410.35 at the time of publishing.