Paytm shares tank another 13%, market cap drops below $12 billion

Shares of Paytm slumped another 13 per cent on Monday, extending its two-day drop to 37 per cent—marking one of the worst debuts ever by a domestic company and a major global technology company.

The start-up, backed by Alibaba’s Ant Financial and SoftBank, saw its market value drop below $12 billion (Rs 88,185 crore) as against a valuation of $18.7 billion (Rs 1.39 trillion) it got in its IPO. The disastrous debut has raised question marks over how the company and its investment bankers arrived at the valuation for its Rs 18,300-crore maiden offering, the largest-ever in the domestic market. After dropping to a low of Rs 1,271 apiece, the stock ended the day at Rs 1,360, sharply below its issue price of Rs 2,150.

The 37 per cent drawdown in its value will hurt investors such as BlackRock and the Canada Pension Plan Investment Board, who had signed big cheques for the IPO. It has also hurt nearly a million retail investors who applied for shares worth nearly Rs 2,100 crore in the IPO.

“The subdued listing and continuation of weak trading of Paytm is a big sentimental setback to the domestic market, which was thriving on the strong primary market. It will impact the inflow of money from the retail segment, which has been a key player during the year,” said Vinod Nair, Head of Research at Geojit Financial Services.

Paytm on Sunday disclosed its performance for October. The company’s gross merchandise value (GMV) rose 2.31 times to Rs 83,200 crore ($11.2 billion) in the month. Loan disbursals, a key metric, increased more than 5 times to Rs 627 crore. The sharp year-on-year (YoY) growth, however, failed to enthuse analysts.

“While GMV has grown 112 per cent YoY, it is dominated by UPI (66 per cent in FY21 as per our estimates), where Paytm earns zero-MDR. We see UPI share climbing up to 85 per cent by FY26E. Hence, we do not see the strong reported GMV growth materially affecting our profit and loss estimates. Paytm reported revenues of Rs 890 crore in Q1 in its RHP, and we maintain our FY22E revenue estimate at Rs 4,500 crore for Paytm. Also, we won’t extrapolate October numbers because they were influenced by strong festive sales,” said Suresh Ganapathy and Param Subramanian, analysts at Macquarie, in a note. MDR is merchant discount rate, the fee a payments company charges for processing transactions.

Ahead of Paytm’s listing on Thursday, Macquarie initiated coverage on the stock with an ‘underperform’ rating and a price target of Rs 1,200.

“Considering Paytm’s heavily cash-burning business model, no clear path to profitability, large regulatory risks to the business and questionable corporate governance, we believe the company is overvalued at the upper end of price band of Rs 2,150,” Macquarie’s analysts said in their initial note.

Paytm’s shares worth nearly Rs 3,700 crore changed hands on Monday. On listing day, the trading turnover in the counter was about Rs 4,000 crore.

Industry experts said Paytm’s poor show has cast doubts on whether the Indian markets are equipped for large public floats.

“Most start-up IPOs have been well-received by the domestic market. Paytm’s IPO, which was double the size of Zomato’s, has shown that maybe the Indian market doesn’t have enough liquidity or depth to handle such a large issuance, especially if sentiment turns sour,” said an investment banker requesting anonymity.

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