BusinessZomato shares not worth above Rs 41 Ashwath Damodaran & Rakesh Jhunjhunwala's...

Zomato shares not worth above Rs 41 Ashwath Damodaran & Rakesh Jhunjhunwala’s prediction came true after a year

Zomato Share Price: Shares of Zomato fell more than 12 percent to Rs 41.20 on Tuesday, which is its lowest level ever.

Zomato shares: Shares of online food delivery company Zomato fell over 12 per cent to Rs 41.20 on Tuesday, its lowest level ever. Along with this, the words of experienced investors like Aswath Damodaran and Rakesh Jhunjhunwala about this stock a year ago proved to be true. Ashwath Damodaran had said a year ago that the value of Zomato’s share is not more than Rs 41.

Ashwath Damodaran is a professor at New York University and is often referred to as a valuation guru. When Zomato launched its initial public offering (IPO) last year at Rs 76 per share, Damodaran called it”too expensive”.

He had said,”The valuation I have worked out for this share comes to around Rs 39,400 crore. Accordingly, the price of one share comes to around Rs 41.”

Shares of Zomato fell to the level of Rs 41.20 on NSE today, July 26, which is very close to the price quoted by Damodaran. Share prices are down 76 per cent from their all-time lows.

Similarly, Rakesh Jhunjhunwala and Ramdev Agarwal had publicly ridiculed Zomato’s valuation at the time of its IPO. However, the stock market ignored his estimates at that time and the stock went up to a price of Rs 169 after the bumper listing. This was almost four times the stated price of Damodaran.

Damodaran had said at that time that this price is not sustainable and will fall soon. It is also worth noting that its shares have seen heavy volume and delivery percentage selloff in the recent past. Its delivery volume on Monday, July 25, stood at around 40 per cent, which is more than double the average for the previous month.

On July 26, the delivery on NSE was around 50 per cent. An increase in delivery volumes suggests that selling pressure remains strong in the stocks.

Why did Zomato shares fall?

This drop in Zomato comes after the end of the one-year lock-in period for its initial investors. These investors held 78 per cent or about 613 crore shares of the company. The one-year lock-in period for these investors ended on Saturday, July 23. Since then, there has been a tremendous sell-off in the shares of Zomato.

What is the rule of lock in period?

The rule of lock-in period is applicable to companies which do not have promoters. Zomato is also one of such companies in which promoter holdings are zero. According to the rules, in a company that does not have promoters, the equity share capital held by the company before the IPO is locked for one year from the allotment of shares. During this time, these shareholders cannot sell a single share of their shares.

Jefferies hopes, Zomato’s stock will go up to Rs 100 Foreign brokerage firm Jefferies, giving a buy rating for the shares of Zomato, has fixed its target price at Rs 100. The brokerage firm says that there is a great opportunity to buy because of the bad sentiments. Jefferies expects that the profitability of this segment will improve, the industry structure will be better than before and the company will be able to save cash in the coming days.

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