Paytm Shares Crash 26% on Debut: What Went Wrong?
After successful listings by many companies in the recent past, this has come as a jolt to the startup ecosystem
Paytm's shares crashed 26 per cent in its stock market debut on Thursday. The dull response comes after last week's mega initial public offer (IPO), the biggest ever in India, of One97 Communications, the parent company of Paytm. The IPO consisted of a fresh issue of INR 8,300 crore and an offer for sale (OFS) by existing shareholders of INR 10,000 crore. It was subscribed 1.89 times last week.
The stock opened for trading at INR 1,950 on the national stock exchange (NSE). This marks a decline of 9.3 per cent from its issue price of INR 2,150. The company allocated shares worth INR 8,235 crore to more than 100 institutional investors.
After Nykaa and many other companies' successful listing in the recent past, this has come as a jolt to many in the startup ecosystem. Analysts have opined that even though the company has a huge customer base, an early mover advantage in digital payments, it is still a loss-making company. Additionally, it is also being said that the company's expensive valuations are the reason behind the fall in stock price.
“This space is strongly controlled by the government and there are many regulatory risks which may derail Paytm's plans. The issue of profitability needs to be addressed. So far, the company has burnt cash to build topline, but has not yet demonstrated how they will deliver a positive bottom line,” Manoj Kumar, co-founder, Val-More Action Advisory told us in an earlier interview.
International brokerage house Macquarie was quoted as saying by many media platforms that Paytm lacks a proper business model. It called Paytm a ‘cash guzzler’, keeping the target price at INR 1,200, which is a 44 per cent.
“Dabbling in multiple business lines inhibits PayTM from being a category leader in any business except wallets, which are becoming inconsequential with the meteoric rise in UPI payments. Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view," the research house said.
Additionally, it also said that dabbling in multiple business lines restricts Paytm from being a category leader in any business except wallets, and unless the company lends, it can’t make significant money.