Zomato share price tumbled over 6 percent intraday on August 23 after the end of the one-month lock-in period for anchor investors.
The stock was trading at Rs 130.25, down Rs 9.00, or 6.46 percent. It has touched an intraday high of Rs 138.10 and an intraday low of Rs 129.40.
Anchor investors are institutional investors who are invited to subscribe to the shares of the company before the Initial Public Offers (IPOs). The availability of a large number of anchor investors before the issue enhances the confidence of the retail investors in the primary issue.
Anchor investors receive their subscription quota a day before the listing date of IPO but with a stipulation that they cannot sell shares for one month. This is to prevent any speculative or adverse movement in the share prices and protect the interest of retail investors.
"Investors should keep in mind that institutional investors are flooded with money so they consider fundamentals of the company in isolation. Decent fundamentals associated with promising industry stocks are kept by them for a longer horizon," said Kaushlendra Singh Sengar Founder & CEO at INVEST19.
"Zomato IPO has divided the market into different thoughts. Loss-making food-delivery platform with way-expensive valuations has put investors into anxiety. It would be interesting to see how anchor investors will react August 23 onwards," he added.
"I don’t believe there will be much movement after the lock-in period ends as the anchor investors will try and hold their portfolios for the mid-to-long term," said Gaurav Garg, Head of Research at CapitalVia Global Research said
However, "one thing which will get impacted is the increase in the free-float market cap which will increase the liquidity of the newly listed company," he said. "Once Zomato’s anchor lock-in period gets over, its free-float market cap will go up from 8.54 percent to 15.64 percent," he explained.
Zomato raised Rs 4,197 crore from anchor investors on July 13 and the rest (out of total issue size of Rs 9,375 crore) through public issue during July 14-16.
"It cannot be said that all anchor investors are long-term investors but most anchor investors stay for a much longer horizon. Although an anchor investor has a longer horizon, a lot also depends on other factors like market conditions and valuation," said Amit Pamnani, DGM at Swastika Investmart.
"If market conditions are positive, not just anchor but other investors also hold stock for the longer term. The growth outlook, financial performance, and valuations are other important factors, which investors keep an eye on. Also, if a stock price exceeds return expectations, anchor investors can exit their investments immediately after the 30-days lock-in period," he added.
Zomato shares have been in a range of Rs 125-140 after making a stellar debut at Rs 116, a 54 percent premium over the issue price of Rs 76 on July 23. It gained 83 percent to close at Rs 139.25 on August 20, a day before the one-month lock-in period ended for anchor investors.
Meanwhile, last week, Zomato said that it has divested its stake in step-down subsidiary Nextable Inc for $1,00,000. "Given the small overall size of the business of the table reservation and management in USA, company has decided to divest and consequently shut down this business in USA," the company said in a stock exchange filing.
Zomato had disclosed in its red herring prospectus that it was in the process of divesting its entire shareholding in Nextable. The turnover and net worth of Nextable as on March 31, 2021, was Rs 6.65 crore and Rs 1.53 crore, respectively.
Also read: How does stock price behave after the end of the lock-in period for IPO anchor investors?
The online food ordering firm which got listed last month, delivered its billionth order last week, co-founder and chief executive officer Deepinder Goyal said.
The total income of the company stood at Rs 916 crore during the quarter under review. This was a massive jump from a revenue of Rs 283.5 crore it reported in the year-ago period.
According to the company, the revenue growth was largely on the back of growth in its core food delivery business which continued to grow despite the severe COVID wave starting April.
Research and broking firm Dolat Capital has recommended a "sell" on the stock. It sees a 45 percent downside in the stock.
"We believe Zomato with its wide offering, deeper reach and untapped opportunity can drive revenue CAGR of 33 percent over FY21-FY30E, but in its conquest for complete ecosystem approach that, too, at a pan-India level would mean the profitability would have to wait for much longer than what market anticipates," it said.
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"We initiate coverage, with a sell rating and DCF based target of Rs 90 per share (implies 15.4x FY23 EV/Sales, 23x FY30 EV/EBIT)," Dolat Capital said.
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