Paytm crashes 27% on market debut, wipes out Rs 38K-cr in investor wealth

Worst day 1 show among large IPOs

One97 Communications, the parent company of digital payments major Paytm, made a dismal debut on the bourses on Thursday, listing at a 9 per cent discount to the issue price of Rs 2,150 as concerns over the company’s lofty valuation and scepticism about its business model weighed on the stock.
 

The stock plummeted as the day progressed, hitting the 20 per cent lower circuit, causing a halt in trading. It fell further after trading resumed to end the day at Rs 1,564, down 27 per cent, on the BSE. At the closing price, the company was valued at Rs 1.01 trillion -- nearly Rs 38,000 crore below the Rs 1.39 trillion value assigned to the Rs 18,300-crore initial public offering (IPO).
 

Grey market activity had suggested that the stock could list close to the issue price or slip below it, but the steep fall caught investors by surprise. Close to a million retail investors applied for the IPO, the country’s largest ever. Global money managers such as BlackRock and Canada Pension Plan Investment Board were among the largest investors in the IPO.
 

This performance could sour sentiment towards the IPO market, which has mobilised over Rs 1 trillion so far this year, experts said.

Paytm’s lacklustre debut is a far cry from the stellar listings of start-up peers Zomato and FSN E-Commerce Ventures, the parent company of online beauty retailer Nykaa. Shares of the food delivery platform had hit the upper circuit on debut, gaining 66 per cent, while the latter’s shares had nearly doubled from its issue price on day one.

It also brings to the fore the dismal track record of large-sized offerings. Four of the five largest listings have made losses for investors on day one. 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, is doing. 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.