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Paytm’s business model questioned on the first day at the market

Paytm's business model questioned on the first day at the market

Paytm founder Vijay Shekhar Sharma bid farewell to his company’s IPO listing ceremony

Mumbai:

Indian digital payments company Paytm fell 25% in its first day of trading on Thursday, with investors questioning the lack of profitability and sky-high valuations the company achieved in its first round of trading. The country’s biggest IPO ever.

Despite concerns that Paytm’s market debut might be less successful, its steep plunge was astounding, as the stock changed hands at Rs 1,614 in afternoon trading from its asking price of Rs 1,614. Rs 2,150, valuing the company at around $14.2 billion.

The stock then reached a lower circuit limit of Rs 1,564 on the Bombay Stock Exchange, restricting investors’ buying to only that price or higher.

Founder and CEO Vijay Shekhar Sharma, who cried with joy during the opening ceremony, later told Reuters he was not worried by the slippage and did not regret listing in India.

“One day doesn’t decide what our future is,” he said. “This is a new business model and it takes a lot for someone to understand it simply … there’s a lot more for us to bring to the market and market participants.”

Paytm, backed by China’s Ant Group and Japan’s SoftBank, has grown rapidly after Uber listed it as a quick payment option in India and has expanded to more services – insurance and sell gold, sell airline tickets and watch movies, make bank deposits and transfer money.

Paytm expects to break even by the end of next year or early 2023, a source familiar with the matter told Reuters in July, although the company said in the prospectus it expected a loss. in the near future.

Investors and analysts on Thursday expressed a lack of confidence.

“Paytm’s financials are unimpressive and growth prospects look limited… it’s clear the company lacks a clear path to profitability,” said Shifara Samsudeen, an analyst at LightStream Research, Smartkarma poster, said.

The company reported a loss of Rs 3.82 billion ($51.5 million) for the quarter ended June, larger than a loss of Rs 2.84 billion for the same period last year.

But Sharma said the company can be profitable when it doesn’t need to invest “too much” to create growth opportunities.

“That’s the quarter you would call break-even,” he added. “But that breakeven won’t mean we’re going to say so forever.”

Although Paytm’s $2.5 billion offering is valued at the top of the specified range, demand is still much weaker than in other recent stock sales, as Paytm has lost some market share to Google’s PhonePe and Flipkart.

It has raised $1.1 billion from institutional investors, and last week it received a bid of $2.64 billion for the remaining shares offered for sale, or oversubscription. relatively low level is 1.89 times.

Many market participants see the stock’s terrible debut as a sign that investors are disillusioned with a recent string of IPOs with inflated valuations.

“Most institutional investors in the country seem to have ignored the IPO,” added Aequitas Research director Sumeet Singh, who publishes on Smartkarma.

He said that the shares offered for sale at 27 times enterprise value/gross profit for fiscal year 2024, 21.3 times more expensive for Zomato Ltd and 23 times more expensive for Sea Ltd.

He also noted that both Ant and SoftBank cut their stakes in the offering. Ant reduced its stake to 23% from 28% and SoftBank’s Vision Fund increased its holdings by 2.5 percentage points to 16%.

The listing of Paytm could help “put an end to hateful valuations in the IPO markets,” said Mumbai-based investment advisor Sandip Sabharwal.

Compared to Paytm’s lackluster debut, food delivery company Zomato Ltd grew 66% when it launched in July after raising $1.2 billion.

More recently, shares of FSN E-Commerce Ventures, which owns the cosmetics-to-fashion platform Nykaa, jumped 80% on its November 10 launch, following a $700 million IPO.

According to Forbes, the success of Paytm has turned Sharma, the son of a teacher, into a billionaire with a net worth of $2.4 billion. Its IPO has also attracted hundreds of new millionaires in a country with per capita incomes below $2,000.

The Paytm prospectus shows Morgan Stanley, Goldman Sachs, Axis Capital, ICICI Securities, JPMorgan, Citi and HDFC Bank.

(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)

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