The aftermarket experience has not been good for some major international new-age brands that went public recently such as Uber, Lyft and Doordash. Therefore, it is better to invest only a small portion of the portfolio corpus into such consumer tech or consumer internet companies, suggests Devina Mehra of First Global.
Based on her over 35 years of experience in equity market and investment banking, she says most of these new-age IPOs are risky. Excerpts from an interview with Moneycontrol:
Paytm, the largest ever IPO in India, opens for subscription. What is your advice to investors? Should one subscribe to the issue or take a call after listing?
Most of the new-age IPOs, including this one, are high-risk bets and small investors should be wary of investing in them. In any case, do not consider investing beyond a small proportion of your portfolio corpus.
Do you think the issue is overpriced, given the fact that the company has been posting losses, though revenue from operations has been on the rise?
When there are no earnings at all and none expected in the immediate future, the valuation becomes all up in the air. As someone said, we are now pricing a prize to story multiple. Also, in Paytm’s case, while the revenue has been growing, their market share has actually been shrinking.
Also read Moneycontrol's Exclusive Research Note on Paytm IPO
This is an additional problem for companies going public as in order to show a better picture while going public, whether it is Zomato or Paytm, in pursuit of lower losses they tend to give up market share. If they are competing with companies which are still private and venture capital funded, it becomes an unequal race as the private investors are still willing to underwrite losses whereas the public listed company does not want to do it to the same extent. The result is loss of market share for the listed entity.
What is the best valuation criteria for payment platform providers like Paytm?
Whatever valuation criteria you use you will have to look at projections for years and possibly even decades to justify the valuations. Ultimately, a stock price is supposed to be discounted cash flow accruing to the equity holders. In a case where the company itself is stating that it will never make profits, how do you even calculate the value?
What are the listing gains you expect for Nykaa, Fino Payments Bank and Policybazaar IPOs?
The question assumes that there will be listing gains and a good aftermarket. The experience internationally with such consumer tech or consumer internet companies has been that the aftermarket has not been very good. This has been the experience with several companies like Uber, Lyft and Doordash.
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