A year after market debut, Paytm is the worst performer among recent large IPOs – Cartrade, Policybazaar and LIC join the party

• The Paytm IPO was the second largest in terms of value, but it has been amongst the worst first-year performers among large IPOs.
  
• In the one year since its listing, Paytm’s shares have tanked 79% from the issue price of ₹2,150.
  
• The expiry of the lock-in period for pre-IPO investors has further added to its woes, but analysts say the risks are ‘overdone’ at current valuations.
  

The initial public offer (IPO) of One 97 Communications, the parent of Paytm, was the second largest in terms of value, only behind the state-run insurance behemoth Life Insurance Corporation of India, but it has been amongst the worst first-year performers among large IPOs.

Paytm floated its ₹18,300 crore IPO on November 8 in 2021, and debuted on the stock exchanges on November 18. The issue opened at a discount, and capped the losses at nearly 28% on its first day of listing.

Now, with over one year since its listing, there doesn’t seem to be an end to the pain – the company’s shares are down 79% from the issue price of ₹2,150. In fact, over the last one month, Paytm’s shares have registered a decline of 29%, with over half of it – 15.6% – coming in the last five days alone.

Lock-in expiry and the Mukesh Ambani challenge

One of the key reasons behind the recent steep fall is the expiry of the one-year lock-in period for pre-IPO investors. SoftBank offloaded a 4.5% stake in the company for $200 million, according to a Reuters report.

Adding to the woes of the company is the emergence of Jio Financial Services – the financial services arm that is to be demerged from Reliance Industries – which is expected to become a deep-pocketed competitor with a large distribution network.

“Reliance Industries has demonstrated its hunger for attaining scale in the past in other businesses, and in our view, can pose a significant growth and market-share risk for players like Bajaj Finance and Paytm, with whom it could be competing head-on,” said Macquarie Research in its latest report.

Risks overdone, say analysts

According to analysts at Citi Research, the risks at Paytm’s current valuations are overdone. Paytm’s shares are currently trading at ₹459, with a market cap of ₹29,780 crore.

“We acknowledge overhang risks from further selling by existing pre-IPO shareholders and that fintech is a competitive space but at these valuations, those risks are overdone,” said Citi Research in its latest report.

The research firm arrived at a target price of ₹1,055 per share, which suggests an upside of 130% from the current market price. The firm notes that it has valued Paytm’s payments and financial services business in line with global fintech companies offering similar services, while the e-commerce business has been valued at the lower end.

However, Paytm still has risks to deal with, including the fierce competition in the UPI space from PhonePe and Google Pay, which have a market share of 84% in the total UPI transactions as of October 2022, according to data from the National Payments Corporation of India or NPCI.

On the merchant side, Paytm has to compete with the likes of Razorpay and Pine Labs.

Other risks include Paytm’s ability to monetise and achieve profitability – UPI is a zero merchant discount rate (MDR) offering and RBI could introduce new regulations, which could have an adverse impact on the company.

Worst IPOs of FY22 and FY23

While Paytm has its task cut out, it is not alone when it comes to IPOs that have drowned in 2021 and 2022 – the list includes the likes of Cartrade, Policybazaar operator PB Fintech, Life Insurance Corporation of India, and Zomato, among others.


Source: NSE, CMP as of 12 p.m., November 25, 2022

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