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Sophisticated investors are holding back on Paytm, India’s biggest IPO

An image of the interface of Indian payments app Paytm is seen in front of its logo
REUTERS/Florence Lo
To buy or not to buy?
  • Mimansa Verma
By Mimansa Verma

Reporter based in New Delhi

Published Last updated

The initial public offer (IPO) by India’s much-touted tech unicorn Paytm has caught retail investors in a frenzy. More sophisticated buyers are, however, yet to bite.

The IPO of the digital payments company opened to a slow start on Nov. 8 (Monday)—interestingly, on the fifth anniversary of India’s massively disruptive demonetisation exercise that led to a boom in such e-transactions.

The three-day public offer was subscribed to only 18% on day 1. The share allotment is likely to take place on Nov. 15, with the listing scheduled for Nov. 18.

On Nov. 9 (Tuesday), on the second day of bidding, the 18,300-crore rupee ($2.47 billion) IPO had been subscribed 48%. Retail investors fully lapped up their portion. However, non-institutional investors went for only 5% of their quota and qualified institutional buyers for 46%.

Considering the growth potential in the company, a Mumbai-based broking firm Choice Broking assigned a “subscribe for long term” rating for the issue.

Don’t go by noise, Paytm IPO is high-risk, analysts say

Some analysts, however, believe the investors should take the frenzy around IPO with a pinch of salt. They say these valuations are too high for a company that has reported losses for the past eight straight years.

Owing to lower expenses, Paytm’s parent firm, One97 Communications, reported a considerably narrower consolidated loss of Rs1,701 crore (pdf) in the financial year that ended on March 31 than the previous year’s Rs2,942 crore.

It is also unlikely that the company will turn profitable anytime soon.

Given these circumstances, most investors are lapping up the IPO only for listing gains or for fear of missing out, according to analysts.

“While it’s highly likely to be a successful IPO, from a long-term perspective, this seems more like a speculative than a prudent investment bet,” Richa Agarwal, senior research analyst at Equitymaster, told The Economic Times newspaper.

Like most new-age public issues, the Paytm IPO, too, is a high-risk bet, according to Devina Mehra, managing director and founder of First Global.

“In Paytm’s case, while the revenue has been growing, their market share has actually been shrinking…small investors should be wary of investing in them (new-age IPOs),” Mehra said in an interview with Moneycontrol. Invest only a small proportion of the portfolio corpus, he suggested, and not beyond that.

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