Paytm management overvalued their share

The initial public offering of Paytm's parent company, One97 Communications, has made history by launching India's biggest ever initial public offer worth Rs 18,300 crore, at the time where the market does not have an appetite for such a large listing. The company has amassed over 50 million strong active consumer base and 25 million merchant base. A higher valuation could have been achieved but we decided to price it at a level where everyone makes money,” said Madhur Deora, group chief financial officer at Paytm, after the public issue.

The stock was issued at Rs2,150, got listed at Rs1,950, hit a high of Rs1,955 and then went into a relentless decline. Paytm has its hands full with multiple business verticals ranging from payment gateway, consumer lending and various financial services, among others. Now investors and analysts seem to lack faith as they questioned the company's lack of profits and lofty valuation, whereas the competitors of Paytm including Amazon, Flipkart, Google and others are offering almost the same services.

As per Axis Securities, a broking firm, says, “Globally, profit-making payment companies are trading at median nine-times of future earnings, whereas One97 Communication, a loss-making company, is valued at 49.7-times its FY21 revenues.

Paytm will find it challenging to expand its business going ahead. “Paytm’s payments-based business model has been disrupted by Unified Payment Interface, a real-time retail payment system developed by government-backed National Payments Corporation of India or NPCI.

As per various published reports, Paytm made an initial public offer of Rs18,300 crore in November 2021. A major part of the issue, i.e., Rs10,000 crore was offer for sale from the existing shareholders who used the IPO to harvest their returns. The company has done lots of financial engineering, despite of that, Paytm's stock crashed spectacularly by 27%, the biggest slump in Indian IPO history.

The size of the IPO and pricing for a start-up with a history of losses was path-breaking. The selling shareholders who received Rs10,000 crore included promoter Vijay Shekhar Sharma diluted his paltry pre-IPO shareholding from 9.1% to 6%. While the selling shareholders are having a ball, new investors have suffered a whopping value loss of Rs10,073 crore with a 56% fall in share price in just three months since its listing on 18 November 2021.

Is it due to overpricing? The market capitalization of Paytm's parent One97 Communications fell below Rs 50,000 crore on Monday as the company's shares hit record low of Rs 751. Paytm's market capitalisation stood at Rs 48,785 crore as its shares ended 4.15% lower on the NSE on March 7 and it clearly shows that Paytm has lost some market share to Google and Flipkart's PhonePe.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA