The much-hyped initial public offering (IPO), which was oversubscribed by 1.89 times, saw Paytm listing below 9% of its issue price. One 97 Communications Ltd (Paytm) ended the day 27.25% or Rs585 down against its issue price on the BSE. The listing day debacle of Paytm reminds listing of Reliance Power Ltd, a lesson for investors that big names are no guarantee of big returns. But more about it later.
On Thursday, Paytm opened at Rs1,955, but soon the scrip started moving downward before hitting a low of Rs1,586.25 on BSE. It hit its lower circuit and then closed 20% or Rs390, down at Rs1,564.15 against its opening price of Rs1,955.
Paytm, when listed, was expected to be one of India’s most valued companies with a valuation of a whopping $20 billion.
One 97 Communications is a loss-making company as it declared a net loss of Rs4,230 crore, Rs2,942 crore and Rs1701 crore for FY18-19, FY19-20 and FY20-21, respectively.
As reported by
Moneylife, Paytm demands a price-to-sales (P/S) multiple of 39, based on its annualised Q1FY21-22 sales, not profits. The company is consistently reducing its operating losses and is on its way to achieving operating profit breakeven. However, its exorbitant valuation already prices in the expected improvement in its profitability. For Paytm to justify its valuation, it will need to demonstrate a strong track record of top-line growth while achieving operating profit breakeven. This may be several years away. (
Read: IPO Analysis: Paytm)
Paytm’s banking products and services such as Paytm Wallet, Paytm UPI, NACH, Paytm FASTag and fixed deposits (FDs) are offered on the platform from Paytm Payments Bank. However, Paytm owns only 49% of Paytm Payments Bank, while 51% is owned by Paytm’s founder, Vijay Shekhar Sharma. As a result, Paytm does not have operational control over Paytm Payments Bank, the services of which constitute a major chunk of Paytm’s products and services.
The payment services industry is intensely competitive with large and well-funded players like Mobikwik, Freecharge and Phonepe. Moreover, mobile wallets are expected to become inter-operable by FY22-23, further increasing the competitive intensity among payment services-providers. This could further delay Paytm’s path towards attaining operational breakeven.
The Paytm IPO had seen surplus demand rushing in as qualified institutional buyers (QIBs), domestic institutional investors and mutual funds bid on the final day of the IPO offer.
Paytm closed India's most significant anchor round on 3rd November as it raised Rs8,235 crore. Blue-chip global investors and tech-focused funds have made their first-ever investment in Indian public markets through the Paytm IPO, while investment giants like Blackrock, CPPIB and GIC have made their largest bets in an Indian IPO.
The company has also attracted the world's top pension funds, superannuation funds as well as sovereign wealth funds like the Government of Singapore, CPPIB, ADIA, APG, City of New York, Texas Teachers Retirement, NPS Japan, University of Texas, NTUC Pension out of Singapore, and the University of Cambridge.
The largest emerging markets dedicated investors like Standard Life Aberdeen, UBS and RWC have also taken part in Paytm's anchor round.
Historical records have proven that when it comes to large IPOs, while retail investors bet on the first day, QIB and high-net-worth individuals (HNIs) invest in the later days of the subscription.
Earlier on the first day, Paytm’s IPO had secured the highest-ever retail percentage subscription for IPOs with retail sizes over Rs1,000 crore over the last decade, which was subsequently oversubscribed early on the second day.
Coming back to the much-hyped issue of Reliance Power, at Rs11,700 crore, it was the largest Indian IPO at that time. It was priced at Rs450 per share and got oversubscribed 73 times. However, on 11 February 2008, the scrip opened to a disastrous listing. Far from quoting at the expected price of Rs1,000 and allowing everybody to make tonnes of money, it tanked to as low as Rs355.05 and closed at Rs372.50, down 17% from the issue price on the day of listing.
Today, Reliance Power closed 2.45% down at Rs13.52. The scrip had hit a 52-week low of Rs2.92 on 19 November 2020 and a 52-week high at Rs18.36 on 23 June 2021.
SEBI should not have given the go-ahead at such price as was fixed, and should have insisted on reduction in the issue price.
Paytm , remember has a past three years loss record. Its not certain when it will breakeven and start recording profits.
Now, SEBI only ensures that all the risks and disclosures are made. And mind it, all such risks and disclosures are made upfront, but, nobody reads them.
And as per one report, after issue of bonus shares, etc, the acquisition price of the promoter would be even less than Rs. 10.00 per share.
It received a massive over-subscription; 50 lakh investors subscribed it over 61 times with 446 QIB over-subscribing it by 82 times. Cumulatively, this meant applications for a staggering amount of over Rs.6,10,000 crore! On the opening day of listing its price crashed. Next day Parliamentary Standing Committee on Finance took up the issue (IT WAS NOT ON THE AGENDA) and expressed their concern. I happened to be one one of the invitees in the meeting and drew the Committees" attention to rampant loot enabled by free-pricing policy and inadequate disclosures not reigned-in by SEBI, among others.
The Paytm IPO analysis page linked on the article is still behind a paywall.
It will be a good idea to open these IPO analysis reports to all readers after the IPO subscription is closed. Once the ipo subscription is closed these ipo analysis content offers no premium value, making it free thereafter gives an opportunity for us readers to assess the quality of these reports.