Paytm wipes out Rs 38,000 crore in investor wealth on market debut
One 97 communications, the parent company of digital payments major Paytm, made a dismal debut on the bourses, listing at a 9 per cent discount to the issue price of Rs 2,150, as concerns over lofty valuations and scepticism over the company’s business model weighed on the stock.
The stock plummeted as the day progressed, hitting a 20 per cent lower circuit, causing a halt in trading. The shares fell further after trading resumed to end the day at Rs 1,564, down 27 per cent, on the BSE. At the closing price, Paytm was valued at Rs 1.01 trillion—nearly Rs 38,000 crore below the Rs 1.39 trillion value assigned in the Rs 18,300-crore IPO.
Grey market activity had suggested the stock could list closer to or even slip below its issue price of Rs 2,150 per share. But the steep fall caught investors by surprise. Over 1.4 million retail investors had applied in the IPO, the country’s largest-ever.
Global money managers including BlackRock and Canada Pension Plan Investment Board were amongst the largest investors in the IPO.
The shocking listing day performance could sour sentiment towards the IPO market, which have mobilised over Rs 1 trillion so far this year.
Paytm’s lacklustre debut is a far cry from the stellar listings of startup peers Zomato and FSN E-Commerce Ventures, parent of online beauty retailer Nykaa. The former had hit the upper circuit on debut, gaining 66 per cent on day one, while the latter’s shares had nearly doubled from its issue price on debut.
It also brings to the fore the dismal track record of large-sized offerings. Four out of five of the largest listings have made losses for investors on day one (see table). Paytm’s listing day performance is the worst-ever for IPOs of more than Rs 6,000 crore in size. Previously, the record was held by Reliance Power, which had crashed 17 per cent during its trading debut in February 2008.
Paytm’s IPO had garnered just 1.89 times subscription last week. The institutional investor portion of the IPO was subscribed 2.8 times but nearly 80 per cent of the bids came from overseas investors.
The company is yet to turn profitable and had made losses of Rs 2,942 crore and Rs 1,701 crore for FY20 and FY21, respectively.
Analysts reckon that dabbling in multiple business lines inhibits Paytm from being a category leader in any business except wallets, which are becoming inconsequential with the meteoric rise in UPI payments.
“Most things that PayTM does, every other large ecosystem player like Amazon, Flipkart, Google, etc, are doing. The competition is quite evident in the BNPL (buy now pay later) space and distribution of various financial products. Longer term, take rates in the distribution business will be driven southwards by competition and regulation,” said a Macquarie report. The brokerage has an underperform rating and a price target of Rs 1,200 for the stock.
According to the brokerage PayTM’s valuation, at about 26x FY23E price-to-sales (P/S), is expensive especially when profitability remains elusive for a long time.
“Most fintech players globally trade around 0.3x-0.5x PSG (price to sales growth ratio) and we have assumed the upper end of this band. We are unwilling to give it a premium here as we are unsure about the path to profitability. Key risks include change in regulations which allow monetisation of UPI and receipt of a banking license,” the brokerage added.
Ant Financial and Alibaba, two of the company’s biggest shareholders, have earned nearly $1 billion by offloading about 6 per cent stake during Paytm ‘s IPO.
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