Zomato share price declined 5% on Tuesday morning extending losses from the previous session. Shares of the online food delivery platform declined over 3% to Rs 123 per share on the BSE in opening deals, registering a fall of over 13% in the last two days. In just two days, Zomato shares have wiped out nearly Rs 12,000 crore in investor wealth.
The selling pressure in Zomato shares came after the lock-in period for anchor investors ended on August 24 leading to high share sales volume on stock exchanges. Mutual funds or sovereign wealth funds that buy a substantial number of shares in an IPO-bound company are referred to as anchor investors. For anchor investors, there’s a 30-day lock-in period post-allotment. They cannot sell their shares before 30 days from the date of allotment.
Zomato shares made a stellar debut on the Indian stock exchanges on July 23.
Since Zomato is a market leader in the food delivery vertical, and in the view of growth opportunities lying ahead, experts believe that the company’s fundamentals remain intact.
Zomato is one of the IPOs which got listed at much better price vs issue price and is still showing resilience amidst weakness across mid cap names and few IPOs not doing well. It reported decent Q1 numbers. When we look at the Q1 numbers, the top line, the average order value and the number of orders are definitely showing an element of momentum. It indicates that we are seeing a good demand.
What really came as a big surprise was that the margin contribution has dropped by 170 basis points. That is something that one needs to figure out, as to what really is leading to this kind of compression, when you’re seeing strong growth on the orders. Also, what remains to be seen is that once you see the offices open up, are we going to see this momentum continue? I do not think we should form an opinion looking at the operating loss as it was known that co will take time to show profitability. There are investors looking for emerging cos with time frame of 3-5 years and Zomato could be an interesting small allocation stock for them.
Till the time Zomato is not falling below its issue price, these dips should not worry investors. Investors of Zomato will need to give time. The story is a long one, the company will not turn profitable soon but one needs to look at the strong top-line growth of 30% plus on a quarter-on-quarter basis. In the near term there may be some volatility which one cannot rule out but these dips should not deter the long term investors.
Zomato’s IPO paved the way for a new era as the company gained huge value on listing due to its unique business model, being the first of its kind listed company and also due to the company attracting humongous Anchor books. Although the company is loss-making it is enjoying good valuations considering future prospect. Long-term investors can maintain their position with stop-loss of Rs 105.
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