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Valuation And Profitability Concerns Cloud Paytm’s Mega Listing

Valuation And Profitability Concerns Cloud Paytm’s Mega Listing

The INR 18,300 Cr IPO was subscribed 1.89 times

For Q1FY22, its reported net loss increased 34% to INR 381.9 Cr

Paytm’s operational revenue rose 62% in Q1 FY22 to INR 890.8 Cr

After a not-so-ecstatic response to its mega INR 18,300 Cr IPO, concerns now hover around its listing on the stock exchanges.

Given its huge and unprecedented size, the offer was not able to garner a massive investor demand compared to several other recent startup IPOs which were subscribed multiple times. The Paytm IPO is the largest offer in India’s history surpassing the INR 15,000 Cr offer of public sector giant Coal India Ltd.

Its shares are expected to get listed on Thursday, November 18. 

Paytm’s grey market prices are currently running at a discount of around INR 10 – INR 20 of the issue price of INR 2,150, traders said. After the IPO closed on November 10 with a lesser-than-anticipated subscription of 1.89 times, the grey market premium slumped around 2% to INR 40 – INR 50.

The subdued market sentiments come on the back of the much talked about company’s valuation and profitability concerns.

Aayush Agrawal, Senior Research Analyst, Merchant Banking, Swastika Investmart, said, “The payment services of Paytm account for the majority of its income. Their attempts to broaden the service offerings and market reach may be challenging, which might have a negative impact on its income.”

He, however, added that as India is buoyant on digitalisation, the company will benefit from the same in the long run.

“As a significant portion of the issue is OFS, we expect the shares to list in a flat ambit with a negative close at 5% to -10%,” Agrawal said. The IPO consisted of — fresh shares worth INR 8,300 Cr and offer sale (OFS) worth INR 10,000 Cr.

It is important to note that Paytm raised INR 8,235 Cr ($1.1 Bn) from anchor investors in India’s largest anchor round. The anchor round was oversubscribed 10 times by 74 investors, out of which 21 investors had bids greater than INR 100 Cr.

Dubbed as India’s largest IPO, Paytm’s offer took off with a slow start on November 8, but was fully subscribed backed by delayed but robust demand from the institutional investors on the last day (November 10).

Manan Doshi, cofounder of Unlisted Arena noted that Paytm has been the talk of the town since it declared IPO plans “expensive pricing” of shares and losses impacted investor sentiments.

“The subscription figures reflect a very low demand and this may be witnessed on its listing too. I am expecting a flat listing and won’t be surprised if the issue opens at a discount,” he said.

Despite business growth and rise in revenues, continued losses and lag in profitability have been a concern for the NCR based digital payments giant.

During the first quarter of FY22, its net loss increased 34% to INR 381.9 Cr, from INR 284.4 Cr during the corresponding quarter of FY21. The increase in losses comes largely on the back of a 40.6% year-on-year (YoY) surge in its expenses to INR 1,312.3 Cr in April-June this fiscal.

In terms of revenue, it witnessed a 62% growth in its revenue from operations during Q1 FY22 at INR 890.8 Cr, backed by robust growth in revenue from payment and financial services.

Agrawal of Swastika Investmart added, “New acquisitions and strengthening of the Paytm ecosystem will be beneficial for the company. Hence, we recommend only the aggressive investors with a long horizon to stay invested in the IPO.”

The company eyes to get listed with a valuation of around $20 Bn. Reportedly, the fintech major had initially targeted a valuation of around $30 Bn.

Update | 17th November, 00:45

The article has been updated with Paytm’s anchor round details.