What is IPO? – Zomato ‘A case study’

For people who are related to the stock market, IPOs (Initial Public Offering) are perceived as a big money-making opportunity. Indeed, many prominent companies seize headlines with huge gains, when they go public. Recently, online food delivery platform ‘Zomato’, launched its IPO on Wednesday, July 14, 2021, and saw its issue get subscribed 38.25 times on the final day of IPO.


Zomato hit the valuation of $5.4 Billion on February 22, 2021, after getting funding of around $250million from Kora, Fidelity, Tiger Global Management, and others. Everyone was suspicious of the Zomato share, as the offer price was quite stiff. However, to everyone’s surprise, the share got listed at Rs. 126.

What Is Initial Public Offering (IPO)?


Today, IPOs are indisputably trendy. However, one needs to understand that it is a very risky investment. This is because it delivers inconsistent returns over long term. Therefore, before planning to invest in an IPO, one should research well about the Initial Public Offering in depth.


In brief, IPO (initial public offering) is a process of offering shares of a public company to common public and listing the shares of the company in the stock exchange. To get listed in the stock exchange companies need to fulfill requirements set by the Securities and Exchange Commission (SEC). IPO’s provide enormous opportunities for companies to obtain capital from the primary market. Even an IPO can also work as an exit strategy for the company’s founders and early investors, after realising full profit from their private investment.

ZOMATO Delivering Delicious Happiness to Your Doorsteps!


The recent epic performance of Zomato’s IPO was applaudable. Zomato IPO was available for subscription from July 14 2021 to July 16, 2021. The price band was fixed at Rs 72-76 per share of the face value of Rs 1 each. Surprisingly, for each share withheld by the company, it got over 38 applicants. The company aimed to raise Rs 9375 crores through the IPO. However, the applications mounted to a total worth close to Rs 3.5 lakh crores.


Yes, that was the level of the demand!
According to BSE data at 5:00 pm, the shares which were to be allocated for the qualified institutional buyers (QIBs) got subscribed 51.79 times, while those of non-institutional investors were subscribed 32.96 times and that of the retail individual investors (RIIs) were subscribed 7.45 times. Separately, shares for the employees’ segment were subscribed around 62 times.


Ahead of the IPO, Zomato raised over Rs 4,196 crore from 186 anchor investors in exchange of 552.1 million equity shares at Rs 76 each. Data from the stock exchange showed.


After Zomato IPO allotment, its share price premium in the grey market had gone up from ₹10 to ₹23. But, after the news break of Zomato IPO’s listing date, GMP had gone up to ₹27. Indeed, on Friday, 23 July, Zomato IPO was trading at Rs 115 per share on BSE and was at Rs 116 on NSE with a 53 percent listing gain.


Why more and more Companies are heading towards capital markets in 2021?


The rush in the IPO market is primarily due to the impact of the Covid-19 pandemic on companies and exuberant stock market activity. The excellent performance of stock markets and higher participation of first-time investors including high net worth individuals (HNI’s) has inspired companies to go public this year. According to the reports, companies have raised around $4.6 billion from IPOs last year. Investment bankers feel that this amount will be easily surpassed in 2021 as more companies will opt for a public offering.


A State Bank of India (SBI) report suggested that over 14.2 million new individual investors have participated in the stock markets in 2020-21 and around 1 crore Demat accounts were opened in FY20-21. Even though the pandemic continues to wreak havoc on India’s economy, the capital markets have not been affected at all. Stock market benchmark indices S&P BSE Sensex and Nifty50 are touching all-time highs every month.


Recent IPOs have done exceptionally well and more investors are looking to make the most out of this period. The interest of retail investors coupled with liquidity has created a perfect platform for companies to go public.


The reason behind Companies going public is either to raise capital or to fund business expansion due to increased demand. For most tech and online delivery start-ups like Paytm, MobiKwik, Zomato, CAMS, Happiest minds, and other firms, the key reason behind going public is to raise capital and expand business as demand grows rapidly.


Indeed, over the next few years, analysts expect over 50 digital tech companies to be listed on the bourses. For sure, there is lot more to come.

References:


https://www.livemint.com/market/mark-to-market/zomato-sold-shares-in-ipo-at-only-half-their-worth-according-to-big-brokers-11627635623992.html
https://economictimes.indiatimes.com/tech/startups/how-zomato-executed-its-ipo-plan/articleshow/84732982.cms
https://www.forbes.co
m/advisor/investing/initial-public-offering-what-is-an-ipo/

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