SUMMARY
The global economic slowdown this year and the impending expiry of the lock-in period for pre-IPO investors have hit the new-age Indian tech stocks hard
While shares of Zomato have recovered a bit after the lock-in expiry in July, the impending expiry in November loom large on Paytm, Nykaa and Policybazaar
The combined m-cap of Paytm, Zomato, Nykaa, and Policybazaar currently stands at $20.16 Bn as against $45.18 Bn at the end of December last year
The Indian startup ecosystem came of age in 2021 as funding jumped through the roof and new-age tech startups listed on the stock exchanges with much fanfare.
The public listing of Paytm, Zomato, Nykaa, and Policybazaar saw much hype and excitement, and these stocks have grabbed a lot of eyeballs since then. However, they have together lost over 55% of their market capitalisation (m-cap) year-to-date (YTD) in 2022.
The combined m-cap of Paytm, Zomato, Nykaa, and Policybazaar currently stands at $20.16 Bn against $45.18 Bn at the end of December last year.
While shares of Zomato have seen some recovery recently after being battered in July post the expiry of the lock-in period for its per-IPO investors, the lock-in period for pre-IPO investors of the other three stocks is expiring in November.
Consequently, shares of Paytm, Nykaa and Policybazaar have been seeing extreme volatility, which is expected to continue over the coming days.
Besides the looming shadow of the expiry of the lock-in period, the global economic slowdown and consequent market volatility, which has battered tech stocks across the globe, have hit the new-age tech stocks in India as well. Stock and industry-specific issues like regulatory uncertainties, weakening fundamentals, and concerns over profitability have also led to a sharp correction in the share prices of the four stocks.
Paytm shares have fallen almost 4% over the last one month, while Nykaa has declined 15% and Policybazaar over 22%, leading to a slump in their m-caps.
Let’s take a look at each of these stocks and the major changes in their shareholding pattern:
FPIs Dump Paytm Shares
Paytm’s m-cap has more than halved to $5.03 Bn YTD while the shares are down over 51%.
As the stock price fell, foreign portfolio investors (FPIs) sold Paytm shares in large numbers during 2022. Just before its IPO, 127 FPIs held 6.7 Cr shares of Paytm, which awaits its lock-in expiry on November 18. The number of FPIs holding the stock grew to 141 in December last year. However, Paytm’s September shareholding implies that the FPIs sold almost 40% of shares in 2022 so far. As of September this year, 88 FPIs held 3.7 Cr shares of Paytm.
At the same time, retail investors, those with shareholding of up to INR 2 Lakh, increased their stake in Paytm. While 10.4 Lakh retail investors held over 2.2 Cr shares of Paytm at the end of December 2021, these numbers grew to 11 Lakh shareholders holding 4.1 Cr shares.
However, it is pertinent to note that Paytm’s major pre-IPO shareholders, whose shares are currently under lock-in, hold a whopping 66% stake in the company. Alibaba.Com Singapore E-Commerce (6.26% stake), SAIF III Mauritius (10.59% stake), and Antfin (Netherlands) (24.88% stake) are among these investors.
With the lock-in expiry knocking at the door, over 42 Cr shares of Paytm are at risk of sell-off.
Paytm is at a major risk of some significant sell-off as the lock-in period expires, believes Kush Ghodasara, CMT, independent market expert.
“Paytm has spent a lot of money on marketing ancillary services and they are not getting good responses in any of those sectors as expected. This is going to affect Paytm in the long term and I think it will hit more after the lock-in expiry,” he said.
However, Axis Capital, in a recent research note, reiterated its ‘buy’ stance on the company with a target price of INR 1,000. “The company’s healthy business performance across operating metrics supports our positive stance on Paytm, where it has posted a strong financial services revenue to drive margin in Q2FY23,” the brokerage said.
Despite 51% Fall In M-Cap, Brokerages Bullish On Nykaa
Nykaa’s m-cap has halved to $6.39 Bn YTD and its shares are trading 47% lower. Nykaa saw a stellar market debut last year, but has failed to retain the gains.
The decline in share price also saw Alternate Investment Funds (AIFs) exiting the stock. While 36 AIFs held 37.8 Lakh shares of Nykaa ahead of its IPO on November 10 last year, the number currently stands at 19 AIFs holding 26.5 Lakh shares.
However, it has seen FPIs increasing their stake in the beauty ecommerce startup. FPIs held 6.57% stake in the company as of September quarter, as against 5.73% stake at the end of December quarter last year and 4.54% prior to its IPO.
However, over 25% of Nykaa’s shares are currently under lock-in. With the lock-in period expiring on November 10, they are at high risk of sell-off.
After the announcement of its financial performance for Q2 FY23, in which Nykaa posted a 344% year-on-year surge in net profit to INR 5.2 Cr, earlier this week, several brokerages covering the stock warned of further volatility around the expiry of the lock-in period.
However, most of the brokerages continue to be bullish on the stock in the long term. HSBC Global Securities said that Nykaa’s stock valuation is now even more appealing and under-appreciates the structural growth opportunity in beauty and personal care.
Meanwhile, JM Financial also said that in light of the impending lock-in expiry, Nykaa becomes a “screaming buy” under INR 1,000.
Policybazaar Loses 64% Market Cap YTD
Shares of Policybazaar have slumped 60% YTD, while its market cap has also witnessed almost a 64% decline during the same period.
Like Nykaa, AIFs reduced their stake in the insurtech startup over the last year. AIFs held 4.39% stake in Policybazaar at the end of September quarter this year as against 6.37% stake at the end of last year.
However, FPIs increased their stake in the company to 12.48% as of September this year from 10.56% at the end of December last year.
More than 23 Cr shares of Policybazaar are under lock-in and may be sold on the expiry of the lock-in period on November 15.
While it looks like Policybazaar is also following a Zomato-like pattern ahead of lock-in expiry, Ghodasara believes that the insurtech startup is likely to face less correction in stock price after the lock-in expiry.
He said that despite the growing competition in the app-based market for insurance, Policybazaar still has the first-mover advantage in the space. Besides, its fundamentals are also strengthening, and the startup needs to control its costs. He added that its stocks are more favourable for immediate buying, given all these factors.
It is noteworthy that in August this year, Info Edge’s Sanjeev Bikhchandani said that the internet company was not in any hurry to sell stakes either in Policybazaar or Zomato. Info Edge, through its various subsidiaries, held a 19.45% stake in Policybazaar as of September.
Commenting on this, brokerage JM Financial said, “While Info Edge has communicated that they might want to “hold as long as the business has legs to multiply money”, each pre-IPO investor might have their own rationale for holding on or liquidating the stake.”
However, the brokerage also noted that most of the per-IPO investors generated liquidity from their investments via OFS and secondary sales prior to the IPO, as was the case with CarTrade Technologies, which did not face much adverse impact of lock-in expiry.
“We anticipate that the current trading valuation could be attractive for the pre-IPO investors to continue holding but they could still liquidate for different reasons,” the brokerage added.
Zomato Provides Hope
Foodtech startup Zomato’s lock-in expiry in July almost coincided with its announcement of the acquisition of quick-commerce startup Blinkit, which together hammered its stock price and m-cap.
Its pre-IPO investor Moore Strategic Ventures sold its entire holding of 4.25 Cr shares at INR 44 apiece after the lock-in expiry. The move was followed by Uber exiting Zomato by selling 612 Mn shares in a block deal worth INR 3,095 Cr.
Later, Tiger Global and Sequoia also joined the others in offloading their stakes in Zomato.
Despite its m-cap falling 55% YTD, Zomato shares have staged a sharp recovery post July, and many analysts believe that investors of Paytm, Nykaa and Policybazaar will have this in mind while making a decision on selling their stake around the lock-in expiry.
In a recent research note on Policybazaar, JM Financial said, “For investors looking to sell, there might also be some learning in taking a more graduated approach and matching with buyers directly through block trade, considering how Zomato managed to revert more than the abrupt fall post lock-in expiry.”
