Weak debut: Paytm lists at discount to offer price, stock down 27%

Paytm IPO had attracted a subscription of slightly less than two times. The Street has been apprehensive of the valuation, deemed to be expensive, for a business that could take time to become profitable on a sustained basis. In the year to March, One97 Communications’ consolidated net loss was Rs 1,701 crore while the income was Rs 3,186.8 crore.

Paytm’s debut on the bourses on Thursday disappointed investors with the country’s largest initial public offering (IPO), of Rs 18,300 crore, listing at a discount to the issue price. Shares of One97 Communications, the parent company of Paytm, hit a closing low of Rs 1,564.15, a fall of 27.25% over the issue price of Rs 2,150. Paytm’s market capitalisation stood at Rs 1,01,399.73 crore.

The IPO had attracted a subscription of slightly less than two times. The Street has been apprehensive of the valuation, deemed to be expensive, for a business that could take time to become profitable on a sustained basis. In the year to March, One97 Communications’ consolidated net loss was Rs 1,701 crore while the income was Rs 3,186.8 crore.

Ahead of the listing brokerage Macquarie assigned a target price of Rs 1,200 for the stock, a level that is 44% lower than the offer price. “Paytm’s valuation, at around 26x FY23E Price to Sales (P/S), is expensive especially when profitability remains elusive for a long time. Most fintech players globally trade around 0.3x-0.5xprice to sales growth ratio and we have assumed the upper end of this band. We are unwilling to give it a premium here as we are unsure about the path to profitability,” the analysts wrote.

The brokerage pointed out that most functions performed by Paytm are performed by other large eco-systems, including Amazon, Flipkart and Google. The competition in the buy now pay later (BNPL) market is intense and Paytm needs to enter the lending business on its own balance sheet and become profitable. However, this will require a banking licence from the regulator. “Obtaining a small finance bank licence could be difficult in our view given that Chinese-controlled firms own more than a 30% stake in Paytm,” Macquarie noted.

Among recent listings, Zomato’s market capitalisation was higher at Rs 1,21,731.04 crore, Bloomberg data showed. Some unicorns that have gone public this year have delivered stellar returns to investors on listing day. Zomato, Nykaa (FSN E-commerce Ventures), and Policybazaar (PB Fintech) gained as much as 65%, 96%, and 22%, respectively, on their debuts.