India’s largest Initial Public Offering in a decade began with heartburn for hundreds of investors as the Paytm stock price crashed 27.25 per cent at debut on Thursday. This is the biggest-ever first-day loss among IPOs that have listed in the last 10 years. Retail investors suffered more than ₹460-crore loss on Day 1 of listing of India’s largest mobile payments platform.
At ₹2,150 per share, Paytm had managed to raise ₹18,300 crore from new investors but its tepid listing spoilt the mood on Dalal Street. Paytm had allotted 10 per cent, worth ₹ 1,830 crore, to retail investors. Existing investors of Paytm, prior to the IPO, managed to collect ₹10,000 crore through the share sale while the company raised ₹8,300 crore through the fresh issue.
Nearly 42 per cent of those allotted shares in the IPO sold on Thursday on the NSE and 46 per cent on the BSE, share delivery figures indicated. In previous IPOs that were listed on premium, 90 per cent of investors exited on the listing day.
HNIs stuck
In contrast, high net worth individuals, who got 3.5 per cent of the Paytm allotment, were sitting on a loss of₹ 650 crore on Day 1. Overall, investor wealth got eroded by over ₹35,000 crore in the first few hours of Paytm’s market debut. Investors were lured by the ₹150 grey market premium of the IPO.
Hype & frenzy
“It is a lesson for everybody including investors and regulators. Valuations are the key for any investment and one should ignore the hype and frenzy. A pre-IPO valuation report for companies should become the norm since market regulator SEBI is also allowing loss-making companies to tap the market unlike earlier when only those having a three-year profit track record could go for an IPO,” said Deven Chokey, MD, KR Choksey Investment Managers. Paytm is a loss-making company and it is difficult to assess its valuations in terms of price-to-earnings ratio, the global benchmark for valuation. But new-age companies are valued more based on the use of their platforms by clients or the public; this metric was huge for Paytm as it was the wallet of choice for money transfer before the government introduced UPI payments.
‘Sell’ report adds to panic
Hours before Paytm’s listing, research house Macquarie came up with a ‘Sell’ report on the stock and said the company was a cash guzzler and lacked focus. The Macquarie report added to the panic as it gave a target price of ₹1,200 a share, down 40 per cent from its issue price.
“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. Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view. Unless Paytm lends, it can’t make significant money by merely being a distributor. We, therefore, question its ability to achieve scale with profitability,” Macquire said in the note to its investors. Paytm’s valuation, at 26 times the FY23E price-to-sales, is expensive especially when profitability remains elusive, it added.
In a tweet, Anand Mahindra said, “My heart goes out to individual IPO investors who must be rattled but I’m sure Paytm will find its right level. There is, however, a silver lining to this sobering debut: it could moderate the casino-like feeding frenzy for IPO listings & help restore the hunt for true value.”