Paytm's stock continues to fall after its first public offering (IPO) failed, and the company's market capitalization has virtually halved,UpcomingNews
Synopsis
On the BSE, Paytm's stock dropped as high as 18.72 percent intraday to Rs 1,271.25, before recovering part of its losses to close 13.03 percent down at Rs 1,360.30. The company's market capitalization was Rs 88,184.67 crore.
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| Paytm's stock continues to fall after its first public offering (IPO) failed, and the company's market capitalization has virtually halved,UpcomingNews |
After raising cash in India's largest IPO, One97 Communications Ltd, the parent company of fintech platform Paytm NSE -12.89 percent, fell for the second consecutive trading day, marking one of the worst debuts ever for a technology business.
On the BSE, the stock dropped as high as 18.72 percent intraday to Rs 1,271.25, before recovering part of its losses to close the day 13.03 percent down at Rs 1,360.30. The company's market capitalization was Rs 88,184.67 crore, compared to a value of over Rs 1.50 lakh crore at the time of its IPO. The stock became public on Thursday, and half an hour before the closing bell, it struck the lower circuit. Friday was a holiday in India, thus markets were closed.
Paytm and its investment bankers have been chastised for pushing the offering too hard after the disastrous trading debut. Vijay Shekhar Sharma, Paytm's founder and CEO, had made it clear that he wanted the company to break the long-standing IPO record set by Coal India Ltd. in 2010.
"Investors should wait for the stock to calm down," Hem Securities Ltd fund manager Mohit Nigam told Bloomberg. "The stock has too much volatility and pessimism."
Paytm revealed financial information for the month of October over the weekend. The company's gross merchandise value increased by 131% year on year to Rs 83,200 crore. Loan disbursements, which analysts believe are critical to Paytm becoming profitable, surged by more than 400% to 627 crore.
Paytm's prospects have been questioned by critics in recent months. Despite an increase of 11% in revenues at its payments and financial-services division in the fiscal year ended in March, total revenue fell 10% due to increased competition, the business announced in July. Macquarie Capital Securities (India) Pvt. Ltd. gave the business an initial "underperform" rating and a price objective of Rs 1,200, which is 44 percent less than the IPO price.
"We believe the company is overvalued at the upper end of the price band of 2,150 rupees," analysts Suresh Ganapathy and Param Subramanian wrote in the note, "considering Paytm's heavily cash-burning business model, no clear path to profitability, large regulatory risks to the business, and questionable corporate governance."
"It was plainly expensive in hindsight, and with seasoned bankers on the team, one would expect them (Paytm) to have priced it correctly," said a former senior Paytm employee who owns shares in the company through employee stock option programs. "The initial public offering has been in the works for some time, and it was always part of the strategy." They appear to have gone beyond on offering size and pricing to take advantage of the current IPO surge."
In a town hall meeting, Sharma cautioned Paytm staff not to read too much into the criticism of the company's business model. He believes that the firm's emphasis on market expansion and the team's ability to execute the plan will determine the company's success more than anything else.
Others believe the Paytm model has potential if it can capitalize on its growing client base.
"Paytm is a solid firm in terms of technology," said Deven Choksey, a strategist at KRChoksey Investment Managers Pvt. Ltd. "However, they need to push into the financial side of the fintech sector." "Just focusing on technology isn't going to cut it."
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