Shares of India's new-age tech platform Zomato are likely to be volatile in the near term on account of market speculation around possible exits by some pre-IPO shareholders (VC/PE/Chinese investors) of the company as well as erstwhile shareholders of Blinkit who had received it under a share swap deal, according to analysts at JM Financial.
While they cannot accurately predict when or if at all these shareholders would want to exit, the brokerage noted that several of them are already sitting on sizeable gains, albeit a large chunk of it is unrealised.
"Our analysis of the cost of acquisition of shares owned by pre-IPO and ex-Blinkit shareholders of Zomato suggests they are currently sitting on substantial gains on their investments, a large chunk of which is, however, unrealised," JM Financial said in a report.
The brokerage pointed out that a few cues from past actions of these investors suggest that at least some of them would be eager to book profits post the recent run-up in the stock. "So, a sizeable proportion of Zomato’s shares could be available for trade in large blocks in a not-sodistant future."
Zomato had issued fresh equity shares to all the selling shareholders of Blinkit as consideration for the M&A last year, at an implied per share price of Rs 70.76. Pursuant to the transaction, the online food delivery giant had negotiated a 12-month lock-in for these shares, compared to the statutory lock-in requirement of 6 months.
According to BSE fillings and company disclosures, these shares will become tradeable from August 28, 2023. A majority of these shares are owned by just three venture capital investors, namely, Softbank, Tiger Global and Sequioa.
JM Financial said that only 50 percent of the shares attributable to the Blinkit founder will be tradeable in the next few days; the remaining 50 percent will continue to be locked in for another 12 months.
The total value of the Zomato stock that all these investors hold is Rs 18,000 crore. "Even if one were to assume that only 50 percent of the VC/PE/Chinese investor stake would be available for trade, the total short-term outflows could be close to Zomato's total IPO size of Rs 9,375 crore," it said.
"We strongly suggest that long-term investors use these liquidity events to build a sizable position in Zomato as it not only offers a strong play on India's online food services market but is also, post the Blinkit acquisition, shaping up into a formidable diversified play on online retail," the brokerage stated.
Shares of Zomato settled 2.08 percent lower at Rs 89.25 apiece on the NSE in trade today. The stock was on a roll after the company disclosed its Q1 numbers for FY24.
Zomato shares have rallied 63.46 percent in the last six month, while it has risen 45.24 percent in the last one year. The stock is trading over 100 percent higher than its 52-week low of Rs 44.35, hit on January 25, 2023.
The company posted a profit of Rs 2 crore in the April to June quarter. The food delivery platform had reported a net loss of Rs 189 crore and 186 crore in the March 2023 quarter and June 2022 quarter, respectively.
First Published: Aug 18, 2023 5:39 PM IST
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