To the company’s many detractors, it’s another stick to beat the company, given that such headlines just two months after an initial public offering could raise questions over the company’s prospects. However, there is no tool more efficient than the stock market to gauge public opinion, and the stock market frankly didn’t bother much after suggesting that it cared a lot.
Shares of the company were trading close to 8 per cent higher on Tuesday when the news broke that the COO had bid adieu to the company. Minutes later, those gains had evaporated and the stock was down 5 per cent. By the time Zomato’s other co-founder, Chief Executive Officer Deepinder Goyal, tweeted the confirmation of his long-time friend’s exit, the stock was already in the green. It ultimately closed the day almost flat.
The market’s reaction suggested that the company will be able to move on and achieve 30 per cent, 40 per cent or whatever revenue growth estimate is put forward by the next brokerage firm to initiate coverage on the stock.
What should trouble investors more is the behaviour of the company since it became a listed entity.
By all means, the COO may have resigned early Tuesday morning given that Zomato does not have a culture of notice period. What is troubling is the route the food aggregator chose to disclose that development.
In the case of listed entities, the Securities and Exchange Board of India’s Listing Obligations and Disclosure Requirements state the following on resignation of a key managerial personnel: “A listed entity shall disclose to stock exchange(s) all events or information, which are material, as soon as reasonably possible and not later than twenty-four hours from the occurrence of event or information.”
At the time of writing, Zomato had not made a disclosure to the stock exchanges notifying the exit of Gupta, who the company’s own IPO prospectus has termed a “key managerial personnel” (KMP). Zomato, instead, chose to disclose the email sent by Gaurav Gupta to the employees of the company on its blog on Monday afternoon, which was then tweeted by Goyal.
True, social media platforms like Twitter have become the go-to medium to disseminate information for market participants in recent years. However, rules dictate that the disclosure of the nature of a resignation of a KMP has to be disclosed first and foremost to the stock exchange, and definitely before it becomes a trending topic on Twitter.
“To sustain high corporate governance standards, disclosure through stock exchanges should be used as a predominant approach instead of dissemination through social media,” said Aninda Pal, partner at DSK Legal. “Communication of such news through social media may unnecessarily create turmoil among investors and may be subject to varied interpretation.”
Curiously enough, a development that swayed the price of the Zomato stock 13 per cent, from the high of the day to its low, did not spur the stock exchanges to seek clarification from the company on the news reports that had been out and about since noon. A glaring miss, given the rapid improvement of such actions by stock exchanges in the past two years.
This is not the first instance where Zomato’s lack of understanding of stock market decorum has irked investors. The company’s decision to not hold a post-earning quarterly investor call and to only meet analysts and investors once a year raised serious concerns among investors last month.
Even some smallcap companies now go to great lengths to ensure that they hold quarterly conference calls with investors to explain their earnings and answer questions. It is a practice that is almost taken for granted among largecap companies, something that Zomato is thanks to its market capitalisation of Rs 1.1 lakh crore.
While some may put down such lapses over disclosure practices and common stock market etiquette to the company still being wet behind the ears in the listed space, the online food aggregator must shed its startup skin and act like a publicly listed company, pronto.
It is in the big boys’ club now. It will be better for Zomato and its shareholders if it acted like one too.
