Digital payments firm Paytm nosedived 25 percent on its first day of trade on the Bombay Stock Exchange (BSE) on Thursday, with investors questioning its lack of profits and the high valuations it gained in India’s largest-ever IPO.
Despite fears that Paytm’s market debut might be less than stellar, its steep plunge was astonishing, as shares changed hands at Rs 1,614 in afternoon trade versus the offer price of Rs 2,150, valuing the firm at about $14.2 billion.
Then Paytm’s shares hit the lower circuit limit of Rs 1,564 on Bombay Stock Exchange, which restricts purchases by investors to only that price or higher, Reuters reported.
Paytm Founder and CEO Vijay Shekhar Sharma, who was visibly crying with joy at the opening ceremony, later told Reuters that he was unperturbed by the slide and did not regret listing in India.
“One day does not decide what our future is,” he said. “It is new business model and it takes a lot for somebody to understand it straightforward… there is a lot for us to bring to the markets and the market participants.”
Paytm, backed by China’s Ant Group and Japan’s SoftBank, grew rapidly after Uber listed it as a quick payment option in India and has expanded into a plethora of services – insurance and gold sales, movie and flight ticketing, bank deposits and remittances.
Paytm expects it could break even by late next year or early 2023, though the company said in its prospectus it expected to make losses for the foreseeable future.
Investors and analysts on Thursday appeared to lack faith.
“Paytm’s financials are not very impressive and the growth prospects seem limited… obviously the company lacks a clear path to profits,” said Shifara Samsudeen, a LightStream Research analyst who publishes on Smartkarma.
Paytm reported a loss of Rs 3.82 billion ($51.5 million) in the quarter ended in June, wider than a loss of Rs 2.84 billion for the same period last year.
Sharma said the company could turn profitable when it did not need to invest so much more to fuel growth opportunities.
“That’s the quarter that you will call break-even. But that break-even will not mean that we are perpetually going to say the same.”
Though Paytm’s $2.5 billion offering was priced at the top of the indicative range, demand was much weaker than other recent stock sales, as Paytm has lost some market share to Google and Flipkart’s PhonePe.
It raised $1.1 billion from institutional investors and last week it received $2.64 billion worth of bids for the remaining shares on offer, or a relatively low oversubscription level of 1.89 times.
Aequitas Research director Sumeet Singh, who publishes on Smartkarma, said that the stock was offered at 27 times enterprise value / gross profit for fiscal 2024, more expensive than the 21.3 times for Zomato and 23 times for Sea.
He also noted both Ant and SoftBank had cut their shares in the offering. Ant reduced its stake to 23 percent from 28 percent and SoftBank’s Vision Fund pared its holding by 2.5 percentage points to 16 percent.
Paytm’s listing could bring an end to obnoxious pricing in IPO markets, said Mumbai-based investment adviser Sandip Sabharwal.
Compared to Paytm’s lacklustre debut, food delivery firm Zomato surged 66 percent at its July debut after raising $1.2 billion.
More recently, shares in FSN E-Commerce Ventures, which owns cosmetics-to-fashion platform Nykaa, jumped 80 percent on its Nov. 10 debut, following its $700-million IPO.
Paytm’s success has turned Sharma into a billionaire with a net worth of $2.4 billion, Forbes says. Its IPO has also minted hundreds of new millionaires.
Morgan Stanley, Goldman Sachs, Axis Capital, ICICI Securities, JPMorgan, Citi and HDFC Bank were the book running lead managers, Paytm’s prospectus showed.