The Paytm IPO has been under the spotlight for months, but it failed to live up to the hype on its listing day.
One97 Communications, the parent company of the country’s largest digital payments startup, made an underwhelming debut on Indian bourses today (Nov. 18). Its share price crashed by up to 26% to as low as 1,603.92 rupees ($21.62) in the morning, from the issue price of Rs2,150.
While it recovered slightly later, it remained at a discount of 9%. The stock closed today more than 27% lower at Rs1,564.
Backed by several global marquee investors, Paytm has spearheaded the country’s digital payments space, especially since the demonetisation exercise in 2016. While the public debut had all the makings of a blockbuster, the shares were oversubscribed by only 1.89 times—2.79 times by sophisticated buyers and 1.6 times by the retail ones.
There were many red flags on the offer right from the beginning.
Paytm’s problems were always in plain sight
Analysts cited the expensive valuations for a company that had not made profits for the past eight consecutive years. It was only in this fiscal that Paytm lowered its expenses and reported a considerably narrower loss at Rs1,596 crore compared to a year ago.
Profitability, though, is still not on the horizon.
Besides, the company spread itself too thin over the years, diversifying into areas such as payments, financial services, travel, and movie ticketing, fantasy sports, and e-commerce. This, too, did not reap desired revenues.
“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…We, therefore, question its ability to achieve scale with profitability,” the brokerage firm Macquarie Research said in a note to its investors.
Stiff competition from well-capitalised rivals like Google Pay and Walmart-owned Flipkart’s PhonePe also posed challenges.
What to do if you have been allotted Paytm shares?
Stock market analysts suggest that investors, who have been allotted Paytm shares, book losses and exit. For those keen on a fintech stock in their portfolio, they recommended more promising alternatives.
“Holding this stock will not help. If the listing is bad, investors will not get an exit at a higher price. Book a loss here and get away from the stock,” A K Prabhakar, head of research at IDBI Capital, told Business Standard newspaper.
Macquarie Research initiated an “underperform” rating on One97 Communications ahead of its listing earlier today, saying its business model lacks focus and direction.
The broking firm also emphasised that competition is likely to hamper medium-term growth. “Unless Paytm lends, it can’t make significant money by merely being a distributor,” it said in a report.