Paytm’s Stock Loses Steam – Market Cap At $2.4 Bn Below Its Pre-IPO Valuation

Paytm’s market capitalisation has gone below its Pre-IPO valuation of $16 Bn. On day one closing of its stock market debut, the fintech giant’s market capitalisation stood at INR 1.01 Lakh Cr ($13.64 Bn), nearly $2.4 Bn less than its Pre-IPO valuation.

The fintech giant was aiming for a $20 Bn valuation for its IPO. 

Earlier today, Paytm made its stock market debut and got listed at a discount of over 9%. The shares of the fintech giant declined further during the day and closed at INR 1,564.15 on the BSE, lower by INR 585.85 or 27.25% from its issue price of INR 2,150 per share. The closing level was INR 390.85 or 20% lower than the listing price of INR 1,955 on the BSE.

On the National Stock Exchange (NSE), the shares listed at INR 1,950 and closed at INR 1,560, lower by 27.4% from its issue price and 20% from the listing price of INR 1,950 per share.

As a result of the share price crash, its market capitalisation took a hit and at the end of the session, the market cap stood at INR 1.01 Lakh Cr ($13.8 Bn).

With the plunge in stock prices, its market cap is currently below Zomato, which stands at INR 1.21 Lakh Cr ($16.37 Bn).

The valuation or rather a possible overvaluation of the NCR-based digital payments company has been a matter of concern for investors ever since the company filed its draft red herring prospectus (DRHP) in July.

According to several reports, One 97 Communications was initially targeting a valuation of $35 Bn. The fintech giant was valued at $16 Bn when it raised $1 Bn in 2019 in a funding round led by US asset manager T Rowe Price.

In a report, Macquarie Research today said, “Paytm’s valuation, at 26x FY23E Price to Sales (P/S), is expensive, especially when profitability remains elusive for a long time.”

Noting that most fintech players globally trade around 0.3x-0.5x price to sales growth ratio, it added, “We are unwilling to give it a premium here as we are unsure about the path to profitability.” 

The research firm said that despite factoring aggressive 50% CAGR increase over the next five years in non-payment business revenues, led by distribution business, Paytm is likely to generate positive free cash flow only by FY30.

“We believe Paytm’s business model lacks focus and direction,” it said.

On November 3rd, Paytm raised INR 8,235 Cr ($1.1 Bn) in India’s largest-ever anchor round. 

The listing was largely on expected lines after a slower than anticipated response to the INR 18,300 initial public offering and persistent concerns of profitability and valuation. Its offer during November 8 – November 10 was subscribed 1.89 times.

The large size of the offer also played a role in slowing the pace of subscription, analysts said.

The company fixed the price band of INR 2,085 – INR 2,150 for the IPO, which included a fresh issue of INR 8,300 Cr worth of shares and an offer for sale (OFS) of INR 10,000 Cr.

A poll started by Inc42 on LinkedIn on November 17, showed that most people were bearish about the mega listing.

Market analysts are of the view that in the long haul, investors should remain invested in the company for better returns.

In fact, Paytm is not the first online company to have made a weak public debut after creating a lot of hype in the market. The most glaring example is that of Facebook, which witnessed an immediate decline as it opened on the stock markets in 2012. Its share prices plummeted more than 40% over the next several months.

With booming prospects for India’s fintech ecosystem and growing revenue, One97 Communications, which owns Paytm can expect to strengthen its financials, consolidate its market position and create more value for the shareholders.

Although running into losses, it witnessed a 62% growth in its revenue from operations during Q1 FY22 at INR 890.8 Cr, backed by strong growth in revenue from payment and financial services.

Its net loss for the quarter increased 34% to INR 381.9 Cr, from INR 284.4 Cr during the corresponding quarter of FY21.

Founded by Sharma in 2000, One 97 Communications began its journey as a value-added service provider. It evolved over the years with different fintech solutions to become an online mobile payments firm.

Before Paytm, beauty and lifestyle unicorn Nykaa witnessed a bumper listing and Fino Payments Bank listing at a discount earlier.

Another digital payments unicorn Mobikwik, which received the SEBI nod for its INR 1,900 Cr IPO last month, has not announced the date and the price range for its IPO yet.