Zomato, this year’s largest initial public offering so far, has seen a strong response from a wide spectrum of investors but the participation by its own employees in the IPO was disappointing.
The food delivery giant closed its Rs 9,375-crore public issue on July 16 after being subscribed 38.25 times. The reserved portion of qualified institutional buyers was subscribed 51.79 times, while it was 32.96 times for non-institutional investors and 7.45 times for shares set aside for retail investors.
But employees subscribed for only 62 percent, or 40.3 lakh shares of the 65 lakh shares reserved for them by the company. Only two IPOs in the past two years have seen lower subscription by employees.
Zomato portion set aside for employees was the third lowest subscription among IPOs in the last two years after Suryoday Small Finance Bank (34 percent) and Macrotech Developers (17 percent).
In contrast, the employee portion of Mrs Bectors Food Specialities IPO saw the highest bidding, as it was subscribed 45.46 times followed by Nazara Technologies (7.55 times), Nureca (4.82 times), SBI Card (4.74 times), Kalyan Jewellers (3.74 times), Indigo Paints (2.5 times) and Equitas Small Finance Bank (1.84 times).
The weak response by employees appears to be a concern for Zomato, one of the leading food services platforms in India, but experts said it is not a reason to worry as the investment of Rs 30.62 crore by employees in Zomato was still a good figure.
The tech startup has already provided ESOPs (employee stock ownership plan) to its employees and key managerial personnel, thus they would have preferred to avoid subscribing public issue.
“The employee portion was subscribed 62 percent only and the Indian equity market has got an anxiety attack due to under subscription of the employee quota. Investors believe that employees’ response to an IPO is a good indicator of the brand worthiness as they are aware of the real ground," Kaushlendra Singh Sengar Founder & CEO at INVEST19 told Moneycontrol.
Also read - Zomato IPO share allotment expected this week, here is how to check application status
He said, "It is worth mentioning that tech startups provided high ESOPs to retain their key managerial personnel and employees of Zomato have a chunk of respective shares. Therefore, a weak response has been observed in the employee quota of IPO but it is not a reason to worry."
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Gaurav Garg, Head of Research at CapitalVia Global Research feels 62 percent subscription by employees is a decent subscription given the size of the IPO and can't be regarded as employees giving it a miss.
He said one of the reasons why it was not fully subscribed could be that the majority of employees would be holding stocks from ESOP schemes and hence would have avoided participating in the IPO at higher valuation then that of ESOP schemes.
The company provided ESOPs to its employees and managerial personnel in 2014, 2018 and 2021. Zomato in its RHP said the entire pre-offer equity share capital would be locked-in for a period of one year from the date of allotment, other than equity shares which are successfully transferred as part of the offer for sale, and any equity shares allotted to employees, whether currently an employee or not, pursuant to the ESOP 2014, ESOP 2018 and ESOP 2021 prior to the offer.
Following the lock-in period of one year, the pre-offer shareholders, may sell their shareholding in the company, depending on market conditions and their investment horizon, according to the company.
Generally the company buys back this ESOPs whenever it turned profitable with having surplus cash in its books, but in case of Zomato, experts say it is not the same case as the company has been making losses year-after-year and the current fund raising will be using only for customer acquisition and expansion of business, and hence there is a possibility that employees who received ESOPs in 2014 can be sold in the market.
Normally, the ESOP policy differs from company to company. In the international market, recently Robinhood Markets Inc, an American financial services company, decided to list its equity shares in the United States. According to its regulatory filing, employees will be able to sell 15 percent of their shareholding immediately on the listing of Robinhood shares towards the end of July. Its employees are allowed to sell another 15 percent after three months from the beginning of trading in shares on the bourses.
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