The current flavor of the season is transition of startups and fintech companies into public listed companies with their ever growing valuations getting the spotlight. We had recently seen the successful listings of startups and digital companies like PolicyBazaar, Nykaa and Zomato. Many like Delhivery, Mobikwik, etc are in the pipeline for their IPOs.
One company, Paytm cannot be ignored at any cost. There was quite the hullabaloo generated during the IPO which was the largest in India’s capital market history. The fervor was such that Paytm’s parent company One97 Communications upped the Initial Public Offering (IPO) size from Rs. 16,600 crore to Rs. 18,300 crore.
Paytm founder and CEO Vijay Shekhar Sharma started his ambitious journey with the Paytm app in 2010 and was slowly capturing users’ attention, although demonetization gave a lion’s share of boost in the success of Paytm’s growth, as all of us witnessed a humongous rise in online payments. Post November 2016, Paytm became a preferred choice for a lot of consumers and merchants for cashless transactions. Paytm seized the moment and scaled up to mark it’s presence as a leading player in the digital transactions ecosystem, thus diversifying further into other avenues like Payments Bank, UPI, E Commerce, Movie ticket booking, etc.
While it is natural for a company to get listed in the equity markets and help retail investors too, to be a part of their economic journey, there seems to be a lot of things that went wrong in the public listing of Paytm.
Investors deep-dive into a lot of things to analyze before buying the shares of any company. The company’s revenue and revenue growth, expense and expense growth, profit, assets and liabilities, Price-earning (PE) Ratio, promoter shareholding, market-cap and such technicals are taken into consideration. These help the investors gauge whether there is something in it for them to invest in the company or not. Each metric serves a different purpose for a different investor.
Cashflow, confidence of promoters, competing companies, growth prospects and all such factors are looked into. Since there was a lot of noise for Paytm, these pointers for Paytm were scrutinized even more granularly.
Factors responsible for PayTM’s disappointing share market debut
The issue price of Rs. 2150 turned out to be quite a spoilsport for Paytm. Since the size of the IPO was the largest in Indian history, the time for it to reach 1.00X subscription also took longer. Experts highlighted that the high valuation seemed to be a mood killer for investors. Another point to ponder was the future prospects of a positive cash-flow.
A decade long presence in the market and still not having a vision of profitability is a challenge in itself, noted experts in many financial research reports. Another point of concern is the growing competition. There are a number of popular apps which support UPI based payments. The consumption behavior of customers/users and merchants can surely be pretty volatile in such a scenario.
Yet another reason that is strongly suspected by analysts as one of the primary causes for the issue’s failure was the receding liquidity in the market. This year had witnessed listing of quite a number of companies, leading investors, both institutional and retail, park their money in profitable prospects. As per Value Research Data, in this calendar year itself, 49 IPOs had raised Rs 1,01,053 crore, in which Rs 62,077 crore was Offer For Sale(OFS). PayTM IPO alone has Rs 10,000 crores as an OFS component, which translates into roughly 16.66 per cent of the entire OFS component of all the listed companies. In layman terms, investors had already invested their lion’s share in the IPOs that preceded Paytm, resulting in a lack of liquidity in the market. This acted as a damper for the Paytm IPO and resulted in its tepid debut.
These points show there were enough red flags for people to avoid the IPO and only those with a very high risk appetite could have placed their applications to buy shares of Paytm.
The result was for everyone to see, on the listing day Paytm showed a tepid and a disappointed performance by opening at a 9% discount and further falling nearly 28% of the initial price. This fall wiped out about 38,000 crore from the market cap. On Monday, 22 November, stock of Paytm fell even more and it last traded at Rs. 1362 in NSE during closure.
The recent bull run of stocks made people dream that markets were invincible, but Paytm listing has forced the investor to wake up and wash their face to come to the reality. Performance of the stock has a lot to do with the technicals and not just hype built around it.
