paytm: Paytm listing failure: what it means for future IPOs

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The market rout after Paytm’s stock exchange debut has raised doubts about impending IPOs, including those of little rival MobiKwik and hotel aggregator OYO, as valuations are subject to much closer scrutiny from the stock market. investors. Indian companies have raised $ 9.7 billion through IPOs in the first nine months of the year – the largest in corresponding periods in the past 20 years. After Zomato’s IPO in July, its stock price jumped 66%, while trendy cosmetics platform Nykaa saw its stock skyrocket by 80% when it debuted. But exaggerated valuations of companies like Paytm indicate a market trend that may be unsustainable. It could also reduce investor appetite for risk and possibly lead to more caution on the part of life insurance giant, LIC’s own IPO – which is expected to be the most big Indian IPO in history – set to take place at the end of March 2022.
Paytm shares fell 18.57% on Monday to Rs 1,271 before recovering slightly to end the day down 12.9% to Rs 1,359.60. The stock is now down more than 36% below its issue price of 2,150 per share. The market cap of the company stood at just Rs 88,184.67 crore compared to its IPO valuation of nearly Rs 1.39 lakh crore. The massive sale has already wiped out Rs 51,194 crore in investor wealth.
MobiKwik could delay its IPO as it struggles to find well-valued foreign institutional lenders amid growing skepticism about fintech business models. The company had filed its draft IPO documents for a Rs 1,900 crore IPO in July, which was approved by Sebi in October and the company aimed to launch the offering ahead of Diwali. Mobikwik’s valuation fell 30-40%, according to Economic Times, and was advised not to IPO as it may be difficult to find sufficient demand from institutional investors.
Analysts who have expressed concern over the valuation of the loss-making company Paytm’s IPO have warned that “foamy” valuations with unclear business models may not end well in today’s market. Point to note: retail investors have already seen more than 35% of their value wiped out in just two trading sessions. While more losses may be in store for the stock, the discovery of its true price will occur after the 30-day lock-in period for key investors ends.
BharatPe founder Ashneer Grover is convinced that there will be no more FinTech IPOs in the current market, while Ola and Oyo IPOs are unlikely to be also not experience a stellar start. “I’m absolutely clear. This pulls the curtains on the IPO market for this cycle. Investors are sitting in the United States. Those who want to invest in the Indian market will ask how the market is doing right now. they’ll ask how the Biggest IPO happened. It’s 40% less. It was also the biggest startup with the highest valuation. People will say you spread the lag gya (this has been reduced). Many HRDs will expire now. Especially in financial technology, I’m 100% sure of that, “Grover told CNBC-TV18.
“Paytm continues its journey south after being listed following a liquidation by retail investors who bet on listing gains. If we talk about the outlook for the future, it remains erratic as the market is not clear on its core business and the timetable for profitability… Paytm comes out with exorbitant valuations where it asked for a market capitalization of Rs 1.4 lakh crore against the turnover of 3,000 crore while Bajaj finserv, which is a Already listed fintech company with a proven track record of continued profit and growth is trading at a market cap of Rs 2.9 lakh crore against revenues of Rs 63,000 cr. Paytm disrupted the payment industry after demonetization, but it has been disrupted by UPI.Ditch with companies with low entry barrier … There is no apple-to-apple comparison for Paytm, but there are higher-rated fintech companies that are available with R easonabl e valuations with certainty of growth, ”said Santosh Meena, Head of Research, Swastika Investmart.
Even before trading began, Macquarie Capital Securities had an “underperformance” rating on Paytm and a price target of Rs 1,200, which is 44% below the IPO price. “The fact of touching several lines of business prevents PayTM from being the leader of its category in all activities, except for wallets, which become inconsequential with the meteoric rise in UPI payments. Competition and competition. regulations will reduce the unit’s economy and / or medium-term growth prospects in our view, ”the brokerage said.
Paytm’s Rs 18,300 crore IPO only managed to raise 1.89 times the subscription, with mutual funds and high net worth investors largely on the sidelines. The offer was won thanks to significant investments from foreign funds such as BlackRock and the Canadian CPP.
“If you buy something at a bad price, that bad decision haunts you for a very long time. My favorite example is Microsoft. It was a big company in 2000. If you bought it for $ 60 in 2000, you would have to wait about 16 years until 2016 to break even. In this context, if Paytm at 20 billion says that I am 65% of Axis Bank, 40% of Kotak Bank, 30% of ICICI Bank and 20% of HDFC Bank, I really mean it. I don’t believe it’s even possible remotely. Let’s just look at some quick pointers here; they want to be this awesome app, but even after seven or eight years of existence, they hardly have made a hole in brokerage houses, in the banking space. I agree that payment bank is a limiting factor, but the average balance of a payment bank account is around Rs 500; do this you want to make them. They hardly made a hole in the ready. I can buy dreams but there is only what I can pay for them, ”Anurag Singh, Managing Partner, Ansid Capital, told ET Now.
Writer and research analyst Richa Agarwal says Hidden Treasure, like Zomato and Paytm, doesn’t really offer unique value innovation to create new markets. While they have effectively incorporated the technology and value for users, they have yet to create value for themselves in the process and face huge competition as well. For Zomato, there is Swiggy. For Paytm, there is competition from Google Pay, Phone Pe, Razor Pay and others.
“True differentiators create lasting value and a virtuous feedback loop. However, most startups, although they claim to be disruptors, thrive on borrowed money, creating unsustainable and unsustainable business models.” said Agarwal.
As a result, investors will now be more cautious and risk averse, especially for loss-making new-age tech companies. Since IPOs had been intense, a market correction is likely to hurt these stocks the most, which is why even recently listed shares of Policybazaar and Zomato have fallen in the past four sessions. Note: these two companies are also loss-making but are not yet making a profit. Point to note: Fino Payments Bank shares are also down 31% from their IPO price of Rs 577 each. Fino Payments Bank debuted at Rs 545.25, a 4% discount from its issue price of Rs 577 per share.
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