Paytm’s IPO sees below par opening, subscribed 18% on first day

MUMBAI: The ₹18,300 crore initial public offering (IPO) of Paytm’s parent company One97 Communications Ltd, the biggest such share sale to hit the Indian stock markets till date, was subscribed only 18% on its opening day on Monday.

According to stock exchange data, as of 5 pm, the retail investor portion was the most subscribed at 78%, while the portions reserved for institutional investors and high net-worth individuals were subscribed just 6% and 2%, respectively.

To be sure, while a couple of other tech IPOs such as Nykaa and Zomato had witnessed a strong investor rush on their opening days itself, these IPOs were much smaller compared to the Paytm share sale.

Paytm has priced its shares in the range of ₹2,080-2,150, valuing the company at ₹1.39 lakh crore at the top end. The share sale closes on 10 November.

The share sale comprises a fresh issue of ₹8,300 crore and an offer for sale of upto ₹10,000 crore. The offer for sale or secondary share sale consists of sale of shares worth up to ₹402.65 by Vijay Shekhar Sharma, upto ₹4,704.43 crore by Antfin (Netherlands) Holdings, upto ₹784.82 crore by Alibaba.com Singapore E-Commerce, upto ₹75.02 crore by Elevation CapitalV FII Holdings, upto ₹64.01 crore by Elevation Capital V Ltd, ₹1,327.65 crore by Saif III Mauritius, ₹563.63 crore by Saif Partners, ₹1,689.03 crore by SVF Partners and ₹301.77 crore by International Holdings.

The record setting initial share sale has received a mixed response from analysts, who have called it a good bet to ride India’s fintech wave, but also pointed out that the pricing of the IPO appears to be expensive.

“At the upper end of the price band, Paytm is valued at 49.7 times FY21 revenues. While valuations may appear expensive, Paytm is well-positioned to benefit from the exponential growth in mobile payments between FY21 and FY26 and hence valuations are justified,” said Jyoti Roy, equity strategist at Angel One Ltd. Paytm had negative cash flows from operating activities for FY19, FY20 and FY21, primarily due to operating losses and on account of additional working capital requirements.

“Any negative cash flows in the future could adversely affect the results of operations and financial condition,” said analysts at ICICI direct.

Aswath Damodaran, professor of finance, Stern School of Business, New York University, said in his 4 October blog that given almost all of the value of Paytm comes from expectations of the future, and there is significant uncertainty on every single dimension, it should come as no surprise that the range on estimated value is immense, with a 3% chance that the company’s equity is worth nothing to more than ₹2 lakh crore (approx $27 billion) at the 90th percentile.

“Even if you strongly favour the company and find it undervalued, it would be hubris to concentrate your portfolio around this stock. In other words, this is the type of stock that you would put 5% or perhaps 10% of your portfolio in, not 25% or 40%,” he said.

If he invested in Paytm, it would not only have to be at the right price, i.e., trading at less than ₹1.5 lakh crore “but also with the acceptance that this cannot be a passive investment, but one that will require active engagement and monitoring of the company’s actions and performance,” he added.