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Why Zomato’s Shares Fallen To Lowest Ever? – Free PDF Download

 

What has happened?

  • 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 this sell off in Zomato stock?

  • 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.

Market cap now

  • The company’s market cap stood at Rs 34,000 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 1 lakh crore of investor wealth had been wiped out by the time of publishing.
  • The stock has plummeted 73% from its all-time high of Rs 169.10 apiece, touched last year in November.
  • 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%.

Blinkit acquisition deal

  • Zomato announced that it will acquire Blink Commerce, in a share swap deal for ₹44.5 bn as part of its strategy of investing in the quick commerce business.
  • According to an exchange filing, the company’s board of directors approved the acquisition of up to 33,018 equity shares of Blink Commerce Pvt Ltd from its shareholders.
  • Blinkit is an quick delivery service in India. It was founded in December 2013 and is headquartered in Gurgaon. It was previously known as Grofers.
  • Grofers changed its brand name to Blinkit on 13 December 2021, in line with its vision to embrace quick commerce.
  • Blinkit was a loss-making entity just like Zomato.
  • And for this reason, Mr Market seems to think this acquisition will have an adverse effect on Zomato.
  • Investors in Zomato are not really pleased with this acquisition as is expected to magnify the company’s high operating losses.
  • By 2023-24, the quick commerce segment will experience great competition, with Reliance Retail, Tata’s BigBasket, Flipkart’s Insta, and Swiggy’s Instamart having already entered the market.
  • However, Blinkit complements Zomato’s food delivery business, and Zomato’s management anticipates significant growth in the future.
  • The quick commerce market has become extremely competitive these days, and it will take a long time for Blinkit to become profitable.

How are other start-ups stock 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% over the IPO price of Rs 76.
  • 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% 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.

Q) Which among the following is used to make 3rd generation biofuel?

  1. Husk
  2. Vegetable oil
  3. Wood chips
  4. Algae

 

 

 

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