Zomato stock tanks over 11% as pre-IPO lock-in period ends By Ashley Coutinho Shares of Zomato tanked over 14% on Monday to a new all-time low as the lock-in period for the online food delivery platform’s pre-IPO stock ended. On Monday, the stock hit a low of Rs 46 on the BSE, down 14.2% over its previous close, before settling at Rs 47.55 at the end of the day, down 11.4%. In the last one year, the shares have slid 62%, after scaling a lifetime high of Rs 169 on the BSE, a gain of 122% over its issue price of Rs 76. The stock price is gradually slipping towards the valuation that Aswath Damodaran, a professor of finance at the Stern School of Business at New York University, had pegged ahead of Zomato’s IPO. He had said the shares were worth Rs 41. “Today’s selling seems to be an overreaction and triggered more by panic selling,” said Siddhartha Khemka, head of research – retail, Motilal Oswal Financial Services. Khemka believes that the stock could continue to remain under pressure unless the company’s fundamentals improve. “There will be a substantial number of individual investors, including HNIs and millennials, in the company, and as their patience exhausts, we could see some more selling pressure in the days ahead.” Zomato’s pre-IPO and early investors include the likes of Uber BV (7.8%), Alipay (7.1%), Ant Financial (6.99%), Tiger Global (5.11%), Sequoia Capital (5.10%) and Temasek (2.2%). Shares of other new-age companies that have low or nil promoter shareholding may come under pressure after the completion of the one-year period post IPO, said market watchers. Paytm, for instance, has zero promoter shareholding and is a loss-making entity as well. Zomato’s shares have been under pressure for some time now, especially after the company, which is a loss-making entity, announced the acquisition of Blinkit, another loss-making firm. “We find investors broadly divided on Zomato’s strategy to acquire Blinkit and some even question the merit of foraying into Grocery (hyperlocal). Before going into details, we claim for Zomato that building grocery business will work as a ‘poison pill’. It would need reasonably high investment and hence, cash burn, and is likely to be a significant logistical challenge to execute as well, but still Zomato can’t afford not to do it,” said a June 10 research report by HSBC, which maintained a buy rating on the stock with a target price of Rs 85. Zomato posted net losses of Rs 360 crore in the last quarter of FY22.
The Japanese pharma major is also filing a plea before the Delhi HC seeking appointment of forensic auditors to analyse transactions involving IHH, Fortis Healthcare and RHT, Singapore, as directed by the HC on October 18.
The development is likely to create legal hurdles and delay the proposed open offer as IHH had recently told FE that it could only go ahead if Sebi agreed with its legal interpretation that the SC’s September 22 order has lifted all such restraints.
IHH managing director and CEO Kelvin Loh told FE on November 9 that the company would like to go ahead with the open offer “as soon as possible” as there has already been a delay of four years. Ravi Rajagopal, chairman of Fortis Healthcare, had added that their legal counsel has advised that the company can go ahead with the open offer as the SC order has disposed of various appeals, including the suo motu contempt. “We have represented to the Sebi and the matter is with them,” Rajagopal had said.
However, legal observers told FE that the matter is not that straightforward and simple as the Delhi HC has to take the final call on the matter of open offer as well as whether a forensic audit has to be done in the share sale which was executed in 2018.
Also Read: IHH to float open offer for Fortis if Sebi concurs with our legal view: MD & CEO
Loh and Rajagopal had said the possibility that the matter may take a different turn when it comes up in Delhi HC cannot be ruled out.
IHH had in July 2018 acquired a 31% stake in Fortis Healthcare for Rs 4,000 crore through the bidding route. It had also earmarked Rs 3,000 crore to make an open offer for an additional 26% to the public shareholders as required under the law.
Daiichi has written to Sebi that the SC in its September 22 order had asked the HC to consider ordering a forensic audit into the dilution of FHL shareholding, repeated violation of undertakings and assurance by former FHL promoters — Malvinder and Shivinder Singh — and the transaction between FHL, IHH and the clandestine transfer of Rs 4,666 crore to RHT Singapore.
Daiichi is “severely prejudiced” with IHH’s clandestine attempt to subvert the status quo order directed by the SC on December 14, 2018, and September 22 with respect to the conduct of forensic audit and the pending proceedings before the HC by purportedly consulting regulatory authorities, including Sebi, on the proposed FHL-IHH transaction. It has reiterated that the FHL-IHH transaction was currently sub-judice before the HC where FHL is also a party, its solicitors, P&A Law Offices, have said in the letter.
“We further state that any such attempt by FHL and/or IHH to proceed with the FHH-IHH transaction would be in direct contravention of the HC and SC orders,” the letter sent by the law firm has stated. Daiichi Sankyo is pursuing the enforcement of Rs 3,500-crore arbitration award against the Singh brothers pronounced by a Singapore tribunal for concealing information when they sold Ranbaxy Laboratories to it for $4.6 billion in 2008. The apex court had in 2018 put on hold the sale of Fortis Healthcare to IHH on a contempt plea filed by the Japanese drugmaker against the Singh brothers.