Paytm IPO- Paytm share still trades at 31.52% discount to the issue price despite an 8% gain in intraday trading| What lies ahead?

Paytm IPO has been the biggest IPO in India, to date. The company raised approximately Rs.18,300 crore from the market but lost almost a fourth of its valuation on the listing day itself. The share debuted at a discount of 27.24% on the issue price, which was Rs.2,150 per share.

The share saw a drop of around 40% from its issue price in just two trading sessions, standing at Rs.1381.20 on Monday, 22 November. Paytm’s market value fell by a whopping Rs.56,233 crore after its disastrous debut on Thursday.

After plunging 40%, the share has finally opened with an upside gain of 7% on Tuesday, 23 November. It reported an intra-day high of Rs.1,454.30 on NSE, even then, the experts still maintain their price estimates of Rs.1000-1100 for the share.

The IPO was subscribed only 1.89 times as compared with Nykaa’s subscription of 82 times and Zomato’s 38.25 times. This poor subscription was also an indication of a poor market debut. Even the grey market premiums forecasted a poor market debut. Over the week end, the company released its financial details for October. The Gross Merchandise value increased by 113% and the loan disbursements, which is crucial for the company to turn profitable, increased by 400%. UPI reported a GMV increase of 117% which shows that paytm is just mirroring the industry trend for UPI. The company’s monthly transacting users also increased by 35% YoY to 63 million from 47 million in October 2021.

A scathing “sell” review released by Macquaire research just before the stock was listed stated that the company lacks any focus and direction, and set a target of Rs.1,200. According to the report, Paytm wallets are slowly becoming inconsequential due to the rise of UPI payments and Paytm is dabbling too much in a variety of avenues to concentrate and grow. According to the Macquaire research report, Paytm’s valuation was 26 times its estimated price to sales ration for 2022-2023.

The founder, Vijay Shekhar Sharma’s wealth decreased by over $781 million in just two trading sessions. Before the IPO was listed, Vijay’s share in the company was valued at $2.3 billion.

Why did the stock perform so poorly?

According to the investors, the valuation was highly inflated with a large market float. The company has become a jack of all trades, spreading over different avenues like financial services, movie tickets, fantasy sports, e-commerce and payments. This high diversification meant that there was no focus on growing the company and it was straying away from its main business of being a category leader in the wallets business. The company is also facing stiff competition from companies like Google Pay and Walmart owned Flipkart’s PhonePe.

Market sentiment towards this company is not very strong as it has been continuously making losses since inception along with its lack of focus on a great opportunity of lending.

Also, according to analysts, the valuation of the company has been done mainly by foreign investors who have a higher risk appetite, in contrast to the Indian public that decides whether to invest or not based on profitability and various earnings ratios. Approximately 75% of the initial investors from various countries sold their stakes in the OFS worth Rs.10,000 crore i.e. more than 50% of the value of the IPO. The point that keeps standing out is that Paytm is no longer a market leader in any of its businesses.

Paytm and it’s peers:

What next?

Paytm used to be a leader in the online wallets segment but is now losing its market share to UPI based payments. As mentioned before, Paytm’s inability to improve their profitability through distribution of financial products like mutual funds, insurances etc will prove to provide an edge to its other competitors.

In conclusion, we have seen many fairly valued companies like Latent View Analytics raised Rs.600 crore, Easemytrip raised Rs.510 crores and Policybazaar raised Rs.5,700 cores. Paytm being highly overpriced was in a way punished by the market. A Macquarie research report predicts a price target of Rs.1,200.

Paytm is set to release its Q2FY22 report on 27^th November, Saturday.