Paytm sinks on debut as India’s biggest IPO irks some investors

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MUMBAI (Businesshala) – Digital payments start-up Paytm made its worst Indian stock market debut on Thursday as its shares fell more than 27% after India’s biggest IPO.

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Paytm’s debut route raised questions about an imminent initial public offering (IPO) on the now red-hot Indian market, including that of its smaller rival MobiKwik and hotel aggregator Oyo, as the valuation comes under scrutiny from investors.

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While some investors questioned Paytm’s lack of profits and high enterprise value of nearly 27 times gross profit, its price drop shocked many and wiped out over $5 billion from Paytm’s IPO valuation. .

As the price declined, it stopped only when the shares of Paytm came close to the circuit breaking level on the Indian exchanges.

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Paytm, backed by China’s Ant Group and Japan’s SoftBank, grew rapidly after Uber listed it as an instant payment option in India and grew in popularity amid the government’s demonetisation exercise in 2016.

Its founder and CEO Vijay Shekhar Sharma, who cried with joy at the opening ceremony, later told Businesshala he was unimpressed by the slide and did not regret listing in India.

“One day doesn’t decide what our future holds,” he said.

“This is the new business model. It takes a lot for someone to understand it,” Sharma said in response to the market fall.

Paytm has expanded into services including insurance, gold sales, film and flight ticketing, bank deposits and remittances.

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Sharma’s equity holdings and ESOPs (employee stock ownership plans) were valued at $1.69 billion, down $600 million over Paytm’s closing price of Rs 1,560.8, according to Businesshala calculations using data in Paytm’s IPO prospectus.

Sharma cashed in on the IPO, however, selling some 1.87 million shares at an issue price of Rs 2,150 per share, earning Rs 4.02 billion ($54 million).

break even

Paytm expects it to break even by the end of next year or even early 2023, a source familiar with the matter told Businesshala in July, though the company said in its prospectus that it expects losses for the foreseeable future. have hope.

Investors and analysts on Thursday expressed concern over the loss-making firm’s valuation at around $18.7 billion in its IPO.

“Paytm’s financials are not very impressive and growth prospects seem limited… Obviously the company doesn’t have a clear path to profit,” said Shifra Samsudin, Lightstream Research Analyst, published on SmartKarma.

The company reported a loss of Rs 3.82 billion ($51.5 million) for the quarter ended June, up from a loss of Rs 2.84 billion in the same period last year.

Sharma said Paytm can be profitable when it does not need to invest “so much” to foster growth opportunities.

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Though Paytm’s $2.5 billion IPO price was at the top of the indicative range, demand was weak compared to other recent start-up IPOs such as Nykaa and Zomato, which were subscribed manifold.

inflated valuation

Many market participants saw Paytm’s decline as a sign that local investors were disillusioned with the head valuation.

Sumeet Singh, Research Director, Equitas, which publishes SmartKarma, said, “It seems that most of the domestic institutional investors have given up on the IPO.

He said the stock was offered at 27 times the enterprise value/gross profit for FY2024, which was over 21.3 times that of Zomato Ltd.

Singh also said that both Ant and SoftBank have reduced their stake in the IPO. Ant slashed its stake from 28% to 23%, and SoftBank’s Vision Fund slashed its stake by 2.5 percentage points to 16%.

Mumbai-based investment advisor Sandeep Sabharwal said the listing could bring “an end to unpleasant pricing in IPO markets”.

Food delivery firm Zomato raised 66% on its debut in July after raising $1.2 billion.

More recently, shares of FSN E-commerce Ventures, which owns cosmetic-to-fashion platform Nykaa, jumped 80% following its November 10, $700 million IPO debut.

Morgan Stanley, Goldman Sachs, Axis Capital, ICICI Securities, JP Morgan, Citi and HDFC Bank were the bookrunners in Paytm’s IPO.

Reporting by Nupur Anand in Mumbai, Sankalp Fartiyal in New Delhi and Vishwadha Chander in Bengaluru; Additional reporting by Scott Murdoch, Chandini Monappa, Abhirup Roy, Savio Shetty and Euan Rocha; Editing by Edwina Gibbs and Alexander Smith

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