Paytm sinks 26% on market debut
PAYTM SHARES FELL AS LOW AS ₹1,586.25, BEFORE PARING LOSSES TO ₹1,665. THAT COMPARED WITH THE IPO PRICE OF ₹2,150
NEW DELHI: India’s largest digital payments provider lost more than a quarter of its value in its first day of trading, heading for one of the worst-ever debuts by a major technology company and casting a chill over a stockmarket boom that had ranked among the world’s most frenzied.
The 26% plunge in One 97 Communications Ltd, operator of Paytm, surprised even some sceptics who had questioned the company’s valuation and path to profitability. Retail investors who piled into the offering are now sitting on heavy losses, alongside global money managers including BlackRock Inc and the Canada Pension Plan Investment Board.
India’s biggest-ever IPO had been touted by some as a symbol of the country’s growing appeal as a destination for global capital, particularly for technology investors looking for alternatives to China.
The question now looming over the $3.5 trillion stock market is whether the optimism that drove IPO fundraising and the benchmark S&P BSE Sensex to record highs has gone too far.
“This kind of a plunge, frankly, has come as a surprise considering the euphoria surrounding the primary market,” said Yasha Shah, head of equity research at Samco Securities Ltd.
Paytm shares fell as low as ₹1,586.25, before paring losses to ₹1,665 as of 12.18 pm. That compared with the IPO price of ₹2,150, the top end of the marketed range. The Sensex dropped 1%, among the largest declines in Asia.
Paytm raised about $2.5 billion in the IPO, with individual investors bidding for nearly twice the number of shares that were available.
In an interview with Bloomberg News minutes after shares sank at the open, Paytm founder and chief executive officer Vijay Shekhar Sharma said the slump “is no indicator of the value of our company.”
“We are in it for the long haul,” he said. “We’ll put our heads down and execute.”
Sharma founded Paytm two decades ago and pioneered digital payments in a predominantly cash-transacting country of 1.3 billion people. The name, short for Pay Through Mobile, rhymes with ATM.
Backed by China’s Ant Group and Japan’s SoftBank, Paytm grew rapidly after Uber listed it as a quick payment option in India and has expanded into a plethora of services - insurance and gold sales, movie and flight ticketing, bank deposits and remittances.
“There’s never a right moment, a correct share price and an accurate valuation,” Sharma said. “We are at the starting point and investors will
get to know us in the coming quarters, years and decades.”
Paytm expects it could break even by late next year or early 2023, a source familiar with the matter told Reuters in July, though the company said in its prospectus it expected to make losses for the foreseeable future.
Investors and analysts on Thursday, however, appeared to lack faith. “Paytm’s financials are not very impressive and the growth prospects seem limited... obviously the company lacks a clear path to profits,” said Shifara Samsudeen, a LightStream Research analyst who publishes on Smartkarma.
The company reported a loss of ₹382 crore in the quarter ended in June, wider than a loss of ₹284 crore for the same period last year.
But Sharma said the company could turn profitable when it did not need to invest “so much more” to fuel growth opportunities. “That’s the quarter that you will call breakeven,” he added. “But that break-even will not mean that we are perpetually going to say the same.”
Ahead of the listing, Macquarie Capital Securities (India) Ltd initiated coverage on the company with an underperform rating and a price target of ₹1,200, implying an over 40% downside from the issue price.
“We believe Paytm’s business model lacks focus and direction,” analysts Suresh Ganapathy and Param Subramanian wrote in the report. “Unless Paytm lends, it can’t make significant money by merely being a distributor. We therefore question its ability to achieve scale with profitability.”
Paytm’s ₹18,300 crore IPO was oversubscribed 1.89 times on the last day of India’s biggest share sale last week. This was greater than miner Coal India’s ₹15,000 crore offer a decade back.
The initial public offering of Paytm’s parent company One97 Communications Ltd received bids for 91.4 million equity shares against the offer size of 48.3 million shares, according to information available with stock exchanges on November 10.
The market debut of Paytm, backed by Berkshire Hathaway Inc, SoftBank Group Corp and Ant Group Co, comes in a standout year for India’s internet startups.
The number of so-called unicorns in the country has doubled and public markets have witnessed strong listing performances of several, including food-delivery service Zomato Ltd, beauty retailer Nykaa’s parent FSN E-Commerce Ventures Ltd and PB Fintech Ltd, operator of online insurance marketplace Policybazaar.
IPOs in the country have raised about $15 billion so far this year, already an annual record by total proceeds. Companies that started trading in 2021 rose by an average of 23% in their first session, according to data compiled by Bloomberg as of November 15.