New Delhi: A year ago, restaurant aggregator and food delivery firm Zomato launched its Initial Public Offering (IPO), opening up its shares to the public for the first time. The IPO got a warm welcome from investors and was oversubscribed by 38 times — which means there were way more bidders eyeing a share in the company than what it could offer at the time.
The closing price on its first day at the stock market — 23 July 2021 — was Rs 126. Fast forward to 2022, the price of Zomato’s equity shares was down to Rs 41.6 Tuesday (26 July).
The bloodbath at Dalal Street has proven to be brutal for Zomato — its share price fell by 14 per cent Monday and 12.6 per cent Tuesday.
Zomato is just one of many new-age, big-tech-related companies that launched their IPOs in 2021. But data shows that investor euphoria for the biggest IPO launches of last year could be fading.
This report is based on an analysis of 6 major tech IPO launches of 2021 — Zomato, Paytm, Nykaa, Fino Payments Bank, Policy Bazaar and CarTrade Tech.
Historical prices available at the National Stock Exchange (NSE) have been noted, and the closing price of the share on 26 July 2022 has been compared with its closing price on its first day at the stock market.
Also read: With $17 billion wipeout, LIC IPO among Asia’s biggest new stock flops this year
Not just Zomato
Among the 6 companies, the fall in Zomato’s share prices is the steepest as investors have lost about 66 per cent of the total worth of investments they made a year ago.
The share price of PB Fintech — known as Policy Bazaar — comes next. The insurance aggregator was oversubscribed by more than 16 times on its final day of subscription.
On the day of its launch (15 November 2021), each share of Policy Bazaar was valued at Rs 1,202.3. On 26 July 2022, the same share was priced at Rs 471.
Then comes Paytm, one of India’s earliest digital money transfer platforms. On its first day at the stock market (18 November 2021), a share of One97 Communications Limited — Paytm’s parent company — cost Rs 1,560. On 26 July, it was worth Rs 692.
CarTrade Tech — an online platform where people can trade second-hand cars — launched its IPO in August last year with a share valued at Rs 1,501 on the first day at the stock market. Today, a share in CarTrade Tech is valued at Rs 671.
Share prices of Fino Payments Bank, which essentially provides businesses with technological solutions related to banking, also halved in a year. On its first day at the market (12 November 2021), a share of the company was worth Rs 543, which had fallen to Rs 259 by 26 July.
Nykaa, an e-commerce company selling cosmetic products, launched its IPO in November last year and has seen the slowest dip in share value. On its first day at the market (10 November 2021), a share of the company cost Rs 2,205, which had fallen to Rs 1,447 on 26 July.
Simply put, if you had invested Rs 10,000 in the great Indian tech IPO rush last year on the first day of trading, your investment today would be worth Rs 3,302 if you invested in Zomato, Rs 3,597 for Policy Bazaar, Rs 4,434 for Paytm, Rs 4,470 for CarTrade, Rs 4,478 for Fino Payments Bank, and Rs 6,137 for Nykaa.
Why did this happen?
There are multiple factors to this phenomenon, said Aditya Kondawar, partner and vice-president of Complete Circle Capital, a Delhi-based investments company.
“The mad rush for IPOs is nothing new. India has had its history with IPO euphoria. We had it during Y2K when internet companies came up for their IPOs. Real estate in 2007-08, pathology and hospitals in 2015, MFI (microfinance institutions) and banks in 2016, insurance in 2017, defence in 2018, chemicals, pharma and new-age companies/start-ups in 2021,” he added.
“The nature of IPOs is such that it always comes in bullish or euphoric times. August 2020 saw 30 DRHP (Draft Red Herring Prospectus) filings, which means 1 DRHP everyday!” he said.
DRHP is filed when a company wants to launch its IPO. It basically acts as an official registration for the offering.
Kondawar cited macroeconomic factors as the reason behind the crash in big tech IPOs.
“It all depends on the situation. In 2020-21, central banks had cut interest rates and pumped in massive amounts of liquidity to support economies that were reeling under the pressure of Covid. Naturally, this liquidity chased assets and led to madness that created valuation bubbles,” he said.
“However, this year, as central banks around the world have gone on rate-hike cycle to curtail inflation and other issues in the economy, equity valuations are getting hit as that free liquidity is moving out and investors are questioning valuations. Interest rates and equity valuations have an inverse relationship,” he added.
However, with respect to the big tech companies, Kondawar said the valuation of these firms wasn’t justified to begin with.
“One of the biggest problems with the tech companies was their valuation. This price crash basically holds a mirror to that. There was a point of time when the value of Policy Bazaar’s share was higher than some of the insurance companies in India,” he added. “I mean how can an aggregator become bigger than the actual companies selling the products?”
Disclosure: Paytm founder Vijay Shekhar Sharma is among the distinguished founder-investors of ThePrint.
(Edited by Nida Fatima Siddiqui)
Also read: LIC isn’t alone, shares of half the PSUs that went public since 2010 trading below IPO price