Why is Zomato’s grey market premium falling ?

As markets awaits the most widely anticipated IPO of Zomato, grey market is witnessing subdued sentiment right a day ahead.

Grey market premium of online food delivery platform Zomato plunged by over 60% ahead of its initial share sale on July 14. The company is aiming to raise Rs 9,375 crore through the IPO. The price band for the issue has been fixed at Rs 72 to 76 per share.

Abhay Doshi, Founder, Unlisted Arena told Money9.com that the grey market premium of Zomato is hovering around Rs 7 at present. The was almost Rs 17-18 last week. He said the way premiums in grey market for Zomato are falling is in contrast to the other IPOs. For others before Zomato, the premiums kept rising as we moved closer to the IPO dates which is surprising.

“This is mostly due to Zomato being the first mover in the space so it’s difficult for the market to ascertain valuations as the company is still posting losses. Also, the size of IPO (Rs 9375 crore) is too big which may be ensuring enough supply which may also be the reason for falling grey market premium,” Doshi added.

On the expectations on subscriptions and listing he said, “We expect subscriptions to be robust as there is huge investor interest here but the listing gains may be only marginal given the concerns on steep valuations”

He also pointed at several challenges which Zomato will have to deal with going forward. One is that the company has already indicated losses will continue going forward. Competition is expected to intensify going forward. From a largely duopoly market dominated by Swiggy and Zomato, more companies like Amazon and Uber Eats are likely to step up.

“There is a risk of a deep pocketed player entering the space which is disruptive and has potential, ultimately this could hurt Zomato. We also need to see what are the company’s growth and expansion plans going forward keeping in mind the steep valuations to see whether the expansion will aid profitability going forward. If not, this also could be a wealth destructor.”