Zomato share price falls to record low as 1-year lock-in period ends. Why though?
Zomato share prices have been falling through like never before. (Photo: Getty Images)
As the mandatory lock-in period for Zomato's shareholders ended on July 23 this year, many sold their stocks in bulk on July 25, 2022, thus leading to a massive fall in stock prices.
Why: Shares bought before an IPO listing have to be mandatorily held by all shareholders for at least 1 year from the listing date if a company has no promoter. However, now that the lock-in period has ended, shareholders sold off Zomato's stocks in bulk.
1. First, what happened to Zomato's share prices
On July 25, 2022, the stock market witnessed an 11% dip in the share prices of Zomato, India's leading food delivery company. The share price fell to Rs 47.50 on July 25, 2022, and is a record low for the brand.
2. Why the drastic sell-off? The guidelines
When there are no identifiable promoters in a company, the pre-IPO investors (ie, the employees, the founders and the institutions) along with the founders need to mandatorily hold their shares post listing, for at least 1 year from the date of share allotment. This is called a lock-in period and shareholders cannot sell their shares during this lock-in period.
Since Zomato's shares were allotted on July 23, 2021, the one-year lock-in period ended on July 23, 2022. Since the market was closed on July 23, 2022, shareholders sold off their shares on July 25, 2022, when the markets opened. Also, these lock-in shares represent about 78% of Zomato's total shares, ie about 613 crore shares. That's why these many shareholders are now free to sell off their shares.
3. Zomato's price history
When Zomato's IPO process began in July 2021, the demand for Zomato's shares was very high (it was oversubscribed 40 times) and an applicant could apply to buy Zomato's shares for Rs 72 to Rs 76. On the day of its IPO debut, Zomato got listed on the stock exchange at a share price of Rs 126. Since then, the share price has been consistently falling and today, on July 25, 2022, the share price has reversed. The share price today stands at Rs 47.65.