Following Paytm’s lackluster performance at the bourses on Thursday, venture capitalists called the listing a ‘reality check’ for the ecosystem as many more — including Droom, MobiKwik, PharmEasy and Five Start Business Finance — are lining up to make their debut.

Paytm’s issue price of ₹2,150 tanked up to 27 per cent despite being the biggest IPO with an issue size of ₹18,300. This comes after the blockbuster listings of Zomato and Nykaa.

More calibrated approach

While investors called it a good wake-up call, they continue to believe that it is unlikely to impact the ongoing craze around IPOs.

Also see: Paytm: No cashback, only cash gone!

Ankur Bansal, Co-founder and Director, BlackSoil, told BusinessLine, “Paytm’s listing will cause bankers and upcoming issuers to take a more calibrated approach to valuation and pricing. But it doesn’t mean the overall sentiment and demand for new economy companies will die down anytime soon. It’s important to leave something on the table for investors so that there can be good listing performance.”

“Also it’s worth noting that despite poor one day performance, Paytm is still valued more than $15 billion which is no small feat. Any listed company performance will be judged anyways over a longer period of time and not just its first day listing performance,” he added.

Usual market corrections

Angel investor and business strategist Lloyd Mathias calls it a misjudgment to expect every stock getting listed to perform.

He said, “It’s normal for every IPO to have its own pricing mechanism. To expect every IPO to list at a higher price than its ask price is a bit overestimated. I think it’s a gradual process and nothing to be alarmed about. But it’s a good reality check for investors and the euphoria around IPOs. You can’t expect every IPO to be a Nykaa where you will get 80-90 per cent. You have to make more long-term judgments.”

Also see: MF investors too feel the heat of the Paytm IPO

“As for Paytm, while it has opened low, I think it’s a wait and watch situation and we have to see how it performs over a month or so. These are normal market correction mechanisms. Now in retrospect, people will say its fundamentals weren’t right but in reality, the issue was oversubscribed to some extent though not at the levels of Zomato and Nykaa,” he added.

Problematic business

“Paytm has been a cash-burning machine, spinning off several business lines with no visibility on achieving profitability… Paytm has drawn in equity capital of ₹190 billion since its inception, of which only 70 per cent (₹132 billion) has gone towards funding losses. Paytm has a problematic business model. It generates very low revenue for every dollar invested or spent towards marketing. This is especially problematic for a low-margin consumer-facing business where competition across each vertical is only increasing,” analysts at Macquarie Research said in its report.

Rahul Khanna, Managing Partner at Trifecta Capital said, "Public investors and private investors do sometime see the opportunity differently and I think given that Paytm has such a significant set of private investors, the expectations were quite significant. After the first day of listing, there’s some amount of disappointment, but we should not judge the whole ecosystem based on that one event.”

 “There were a lot of people who were trying to understand Paytm’s business model. The sector it is operating in is highly regulated and competitive unlike a Zomato which has only had Swiggy as a competitor and for Nykaa, there’s no other company of that size of consequence in that space. Every company needs to be looked at in comparison to its own sector or sub-sector,"  he added.