Why Zomato shares plunged 14% today to touch new record low

Zomato delivery

Indian Market
by 5paisa Research Team Last Updated: 2022-08-08T19:03:52+05:30

Food delivery company Zomato’s shares slumped as much as 14% on Monday morning to touch a new record low of Rs 46 apiece as investors remained bearish on the stock.

Shares of Zomato began trading at Rs 52.65 apiece, down from Friday’s closing level of Rs 53.65 apiece and then dropped to Rs 46.00 within minutes. At 11:30 AM, the shares were trading 11.2% down at Rs 47.65 apiece.

In comparison, the BSE Sensex was down 0.8% at 55,616.39.

The stock’s previous low was Rs 50.35 touched on May 11. With today’s fall, Zomato shares are now almost 40% below the IPO price of Rs 76 per share.

The shares are now down more than 70% from the record high of Rs 169.10 on November 16, 2021.

The trading volume was also very high on Monday with more than 200 lakh shares traded until 11:30 AM. This compares with the two-week traded volume of 35.35 lakh.

The shares slumped after the one-year lock-in period on shares allotted before the IPO ended. Zomato had made a stock market debut on July 23, 2021 after its initial public offering.

The lock-in period of pre-IPO investors including the company’s founders, employees and other institutions ended on July 23.

To be sure, it's not uncommon for a company's share price to fall after the end of the lock-in period. However, the extent of the fall in Zomato's shares is indeed surprising and reflects the pessimism of investors about the company's prospects. 

Zomato had itself warned of a drop in its shares after the end of the pre-IPO lock-in period. In its Red Herring Prospectus filed last year, it said: “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.”

Apart from the expiry of the lock-in period, another reason for the drop in the share price could be investors’ growing concerns about the company after media reports said that Jubilant FoodWorks, which runs the Domino’s and Dunkin’ Donuts chains in India, could take away some of its business away from food delivery companies Zomato and SoftBank-backed Swiggy, if their commissions increase further.

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