How did Paytm’s shares enter the stock market after India’s biggest IPO ever opened?
the story So Far: Financial technology platform and Paytm’s parent company One97 Communications recently came out with India’s biggest initial public offering, a share sale of ₹18,300 crore, which included an offer for sale from existing shareholders. While the share sale raised the expected amount, the subscription frenzy seen in other IPOs was conspicuously missing here. And of course, the stock fell 27% on Thursday for the first time ever in the stock markets.
How does Paytm’s IPO compare with other recent IPOs?
The enthusiasm for Paytm’s offering of ₹2,150 per share – valuing the company around ₹1.5 lakh crore – was relatively low. The retail segment was subscribed 1.62 times. As of 12:31 PM on November 23, 2021, the share was trading at ₹ 1,463.95 against the issue price of ₹ 2,150.
In comparison, fashion e-commerce firm Nykaa subscribed 12.3 times its retail share. Nykaa’s offering aims to raise ₹5,352 crore at ₹1,125 per share. On the first day of listing, the stock closed at Rs 2,207, almost double its issue price. Data analytics company Latentview also tapped the markets to raise ₹600 crore, with an offering price of ₹197. The retail segment was subscribed 119.44 times. It debuted on Tuesday at Rs 530, an increase of 169% from its offer price.
What is the perception of Paytm’s aspirations and its business model?
Overvalued is how investors view Paytm’s business. On the day of Paytm’s launch on the stock exchange, investment banking firm Macquarie said it had a target price of ₹1,200 for Paytm stock, while the offer price was ₹2,150. The brokerage firm describes Paytm as, ‘Too many fingers in a lot of pie’. Under its umbrella, Paytm Wallet, a payment banking service, a payment gateway, consumer loans through merchants and Non-Banking Financial Company (NBFC) tie-ups, credit cards, wealth management, insurance disbursement, ticketing, gaming and a Provides mini app. Forum. The report added that the dubbing across multiple business lines “prevented Paytm from being a category leader in any business except wallets, which are becoming irrelevant with the meteoric rise in UPI payments”. This was evident in the RBI’s monthly bulletin for November, 2021, which showed that UPI transaction volume grew faster than wallets in September. Wallet transaction volume grew 7.4% to 3,884.65 lakh in September 2021 from 3,616.58 lakh a year ago, while UPI transaction volume grew 103% to 36,558.17 lakh in September 2021 from 18,001.67 lakh a year ago. Macquarie also said that in most of Paytm’s businesses, competition – in the form of Amazon, Flipkart and Google – is clear and present, and regulation will reduce entity economics and/or growth prospects in the medium term. It said Paytm’s absence in the lending business prevented it from earning any significant money by simply being a distributor.
The brokerage said charges on UPI transactions would be good for Paytm, but it is no longer the case. And for it to lend profitably, Paytm needs a banking license, credit underwriting experience and collections infrastructure, “all of which are currently lacking”.
What else could contribute to the poor investor interest?
Another factor that likely led to the weak response was the company’s tendency to burn cash.
According to Macquarie, which cited research and company data, Paytm has raised a total capital of ₹19,000 crore since inception, but accumulated losses have been in the region of ₹13,200 crore. In other words, about 70% of the capital raised is deficit financing. It pointed out that for FY17 to FY21, the total equity capital raised by Paytm was ₹14,200 crore, but the business generated during the same period was only ₹13,000 crore. Macquarie reported Paytm’s current net worth as ₹6500 crore.
Paytm founder Vijay Shekhar Sharma said the business model of fintech platforms like Paytm was not fully understood by the investors and clarity would take time to come. Media reports have quoted him as saying that Paytm’s business was “not as simple as delivering food. Or selling a mobile phone”.
In another report after Paytm’s listing, Macquarie also said that it will take time for investors to understand the fintech business model but its approach was completely different from Mr. Sharma’s. This indicates that the bullish on the stock was likely to be affected by the GMV (or gross trading value, i.e. the selling price that the platform enables sellers to sell). Paytm can earn some revenue if buyers use its wallet, but if they use it to transact with apps on the UPI platform, a player like Paytm does not earn any revenue through fees.
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