Paytm shares tank nearly 28% on listing day: All you need to know

Paytm shares ended the trading session at Rs 1,564.15 or 27.25 per cent lower on the Bombay Stock Exchange (BSE). On the National Stock Exchange (NSE), Paytm shares ended the day nearly 28 per cent lower.

NO LISTING GAINS FOR INVESTORS

Investors who had bid for Paytm’s IPO, the largest-ever public issue in India’s history, faced sharp losses during the day due to the discounted listing. While there were indicators that Paytm would make a weak debut on the stock market, the steep plunge came as a shock to many investors.

Shares purchased by investors during the IPO at Rs 2,150 at the upper band tanked by almost Rs 590 by the end of today’s trading session, leading to a huge loss for investors.

At the end of the day, investor wealth worth over Rs 35,000 crore was eroded due to the weak listing and subsequent fall throughout the day. While the steeper-than-expected plunge may have shocked investors, analysts were not surprised by the weak listing.

WHAT CAUSED PAYTM’S WEAK DEBUT?

Many analysts had earlier pointed out that Paytm’s IPO valuation was expensive in comparison to its revenue. Even after falling sharply, Paytm’s valuation remains higher than most of its peers. Another problem highlighted by experts was the company’s lack of profits and uncertain growth potential.

While many analysts expect Paytm to grow over the long term, it will depend on multiple factors including competition, expansion and achieving scale with profitability.

A report by Macquarie Research analysts suggested that Paytm’s business model lacks focus and direction. The analysts kept a target price of Rs 1,200 for the issue, indicating that the current price of Rs 1,564 is also expensive.

“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 brokerage said in the report.

“Macquarie’s MGRS (governance and risk scoring) system places Paytm below the median. Obtaining a small finance bank license could be difficult in our view, given that Chinese-controlled firms own more than a 30 per cent stake in Paytm,” it added.

Shifara Samsudeen, a LightStream Research analyst who publishes on Smartkarma told news agency Reuters that Paytm’s financials are “not very impressive” and the growth prospects seem limited. Samsudeen added that the company lacks a “clear path to profit”.

It may be noted that Paytm reported a loss of Rs 382 crore in the quarter ended in June, which is wider than the loss of Rs 284 crore it reported for the same period last year.

The high valuation combined with other growth challenges have led to a weak debut for the online payments firm as its IPO was oversubscribed just 1.89 times, which is far less than recent successful public issues.

A Mumbai-based investment adviser, Sandip Sabharwal, told Reuters that Paytm’s listing could bring “an end to obnoxious pricing in IPO markets”.