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.