The stock is now down over 36% below its issue price of 2,150 per share. The company’s market cap stood at just Rs 88,184.67 crore as compared to its IPO valuation of nearly Rs 1.39 lakh crore.
The market rout following Paytm's debut on the exchanges has raised doubts around impending IPOs, including those of smaller rival MobiKwik and hotel aggregator OYO as valuations come under much closer investor scrutiny. Indian companies have raised a whopping $9.7 billion via IPOs during the first nine months of the year – the largest in corresponding periods in the last 20 years. Following Zomato's listing in July, its share price surged 66 per cent, while cosmetics-to-fashion platform Nykaa saw its stock skyrocket 80 per cent on its debut. But the overblown valuations of companies like Paytm point to a market trend that may be unsustainable. It may also dent investors appetite for risk and perhaps lead to increased investor caution over life insurance giant, LIC's own IPO – expected to be the largest Indian IPO in history – scheduled to take place at the end of March 2022.
Paytm's shares fell as much as 18.57% on Monday to Rs 1,271 before recovering slightly to end the day down 12.9% at Rs 1359.60. The stock is now down over 36% below its issue price of 2,150 per share. The company’s market cap stood at just Rs 88,184.67 crore as compared to its IPO valuation of nearly Rs 1.39 lakh crore. The sharp sell-off has already erased Rs 51,194 crore in investor wealth.
MobiKwik could delay its IPO as it is struggling to find foreign institutional backers at the right valuation amid growing scepticism around fintech business models. The company had filed its draft IPO papers for a Rs 1,900 crore IPO in July, which was approved by Sebi in October and the company was aiming to launch the offering before Diwali. According to Economic Times, Mobikwik's valuation has dropped 30-40% and it has been advised to not go ahead with its IPO as it could be hard to find enough demand from institutional investors.
Analysts who expressed concern over the IPO valuation of loss-making Paytm have cautioned that "frothy" valuations with unclear business models might not end up well in the current market. Point to note: Retail investors have already seen more than 35% of their value wiped out in just two trading sessions. While further losses may be in store for the stock, its real price discovery will happen once the 30-day lock-in period for anchor investors ends.
BharatPe founder Ashneer Grover is confident that there will be no more fin-tech IPOs in the current market while IPOs of Ola and Oyo are also unlikely to see a stellar debut. "I am absolutely clear. This brings down the curtains on the IPO market for this cycle. Investors are sitting in the US. Those who want to invest in the Indian market will ask how the market is right now. Then they will ask how the biggest IPO has fared. That is 40 percent down. It was also the biggest start-up with the highest valuation. People will say ye to discount lag gya (this got discounted).Many DRHPs will expire now. Especially in fin-tech, I am 100 percent sure," Grover told CNBC-TV18.
"Paytm is continuing its southward journey after listing on the back of liquidation by retail investors who were betting for listing gains. If we talk about the future outlook then it is still erratic because the market is not clear about its core business and timing of profitability... Paytm comes out with exorbitant valuations where it was asking a market cap of Rs 1.4 lakh crore against the revenue of 3,000 crore while Bajaj finserv, which is an already listed fintech company with a proven track record of continuous profit and growth is trading at a market cap of Rs 2.9 lakh crore against revenue of Rs 63000 cr. Paytm disrupted the payment industry post demonetization but it got disrupted by UPI. The biggest strength for Paytm is its massive customer base along with strong brand positioning however there is no clear moat with low entry barrier businesses... There is no apple to apple comparison for Paytm but there are better-listed fintech companies that are available with reasonable valuations with a certainty of growth," said Santosh Meena, Head of Research, Swastika Investmart.
Even before trading began, Macquarie Capital Securities had an “underperform” rating on Paytm and a price target of Rs 1,200, 44% lower than the IPO price. "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. Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view," the brokerage said.
Paytm’s Rs 18,300-crore IPO managed to garner just 1.89 times subscription, with mutual funds and wealthy investors largely staying away. The offer scraped through thanks to large investments by foreign funds such as BlackRock and Canada’s CPP.
"If you buy something at a wrong price, that bad decision hounds you for a very long time. My favourite example is Microsoft. It was a great company in 2000. If you bought it at $60 dollars in 2000, you had to wait about 16 years till 2016 to just break even. In that context, if Paytm at 20 billion is saying that I am 65% of Axis Bank, 40% of Kotak Bank, 30% of ICICI Bank and 20% of HDFC Bank, I really do not believe it is even remotely possible. Let us just look at a couple of quick pointers here; they want to be this super app, but even after seven, eight years into existence, they have hardly made any dent into brokerages, in banking space. I agree the payment bank is a limiting factor, but the average balance in a payment bank account is just about Rs 500; do what you want to do with that. They have hardly made any dent in the lending space. I can buy dreams but there is only so much that I can pay for it," Anurag Singh, Managing Partner, Ansid Capital told ET Now.
According to Richa Agarwal, Editor and Research Analyst, Hidden Treasure the likes of Zomato and Paytm are not really offering a unique value innovation to create new markets. While they have indeed incorporated technology and value to users, they are yet to create any value for themselves in the process and are also dealing with huge competition. For Zomato, there is Swiggy. For Paytm, there is competition from Google Pay, Phone Pe, Razor Pay and others.
"The real differentiators create sustainable value and virtuous feedback loop. However, most startups, despite claiming to be disruptors, are growing on borrowed money, creating unsustainable and non-self-reliant business models," said Agarwal.
Hence, investors will now be more cautious and risk-averse especially for loss-making new-age technology companies. Since IPOs had been running hot, a correction in markets is likely to hurt these stocks the most, which is why even recently-listed Policybazaar’s shares and Zomato were down in the last four sessions. Point to note: These two companies are also loss-making and yet to deliver a profit. Point to note: Fino Payments Bank’s shares are also down 31% from their IPO price of Rs 577 apiece. Fino Payments Bank had debuted at Rs 545.25, a 4 per cent discount to its issue price of Rs 577 per share.