Explained: The reasons why Zomato’s shares tanked to an all-time low

FP Explainers • July 26, 2022, 13:16:03 IST

Zomato share plunged more than 14 per cent to Rs 46 apiece on Monday, way below its issue price of Rs 76 per share in July 2021. What has gone wrong for the food aggregator and food delivery giant?

Explained: The reasons why Zomato’s shares tanked to an all-time low

Zomato, the Indian food delivery giant, didn’t feel the love at all on Monday when its shares fell more than 14 per cent to a record low of Rs 46 apiece intraday, a new all-time low, on the Bombay Stock Exchange (BSE).

The stock has plummeted 73 per cent from its all-time high of Rs 169.10 apiece, touched last year in November.

Zomato made a stellar debut on 23 July 2021 in the Mumbai market, but its shares have lost more than 60 per cent of their value since then.

We examine the reasons behind the fall and its impact.

Why the fall?

As per financial experts, the crash in share values was because the mandatory lock-in for promoters, employees, and other shareholders had ended, allowing them to sell their shares.

There is a mandatory lock-in period of one year for promoters, employees and other shareholders, who bought the stock before the IPO ended on 23 July 2021.

As per the rules laid down by market regulator Securities and Exchange Board of India (SEBI), the company which does not have 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.

Anuj Gupta, Vice President — Research at IIFL Securities said in a report to LiveMint, “Shares of Zomato were listed on Indian bourses on 23rd July 2021, which mean one year lock-in for promoters, company employees, founders of the company, etc. has ended today. As these shareholders constitute around 78 per cent of total paid up capital of Zomato Limited, shares of this food service under sell-off pressure in early morning session today.”

Since its life-time high of Rs 169 per share levels in November 2021, the food delivery giant has been under heat and has been making new 52-week lows since the last few sessions.

The company was valued at roughly Rs 43,200 crore as a private company, but its market cap was just Rs 37,911 crore.

Zomato’s previous slide

While Monday’s crash was its biggest, the company has taken a severe beating in the past; after its acquisition of quick commerce startup Blinkit (formerly Grofers) last month.

Zomato shares tumbled sharply — 14 per cent in the last two sessions — since it announced that it would buy local grocery-delivery startup Blinkit for Rs 4,447 crore ($568.16 million) in an all-stock deal. At the time, it was reported that Zomato’s stocks had fallen 53 per cent on a cumulative basis.

Meme fest galore

Predictably, the Zomato situation quickly provided fodder for memes and Twitter was soon flooded with them.