The listing at a discount ran contrary to the trend of IPOs of India’s internet startups, many of whom have seen blockbuster listings.

Paytm founder Vijay Shekhar Sharma ringing the bell at the Bombay Stock Exchange at 10 am with his son and mother
Money Stocks Thursday, November 18, 2021 - 15:25

One97 Communications, the parent company of Paytm which launched India’s largest IPO, saw a lacklustre listing on the stock markets on Thursday, November 18. The stock listed 9.3% lower than the issue price of Rs 2,150 -- debuting at Rs 1,950. However, it soon fell steeply to over 20%, touching a low of Rs 1,586.35. At the time of writing, the stock was trading down by over 22.5%. 

Paytm had fixed its IPO in a price band of Rs 2,080-2,150 per share. The IPO was oversubscribed 1.89 times on the last day, making it larger than Coal India's Rs 15,000 crore offer a decade ago. The IPO didn’t receive much interest apart from the retail portion. 

Several people who received allotment in the IPO also took to Twitter to vent about losing money. The listing at a discount ran contrary to the trend of IPOs of India’s internet startups, many of whom have seen blockbuster listings. 

On Thursday, Macquarie Research said that it believes Paytm’s business model “lacks focus and direction”, and called the company a cash guzzler. Macquarie said that while Paytm has dabbled in multiple businesses, it has inhibited the company from being a leader in any business except wallets. That too, it said, is becoming inconsequential with the rise of UPI. 

“Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view. Unless PayTM lends, it can’t make significant money by merely being a distributor. We therefore question its ability to achieve scale with profitability,” Macquarie said.

It added that unit economics will only go down, as every other large ecosystem player is doing most things that Paytm does.

The brokerage house set a target of Rs 1,200 on the stock, as opposed to an issue price of Rs 2,150. 

Macquarie said Paytm’s valuation was expensive especially when the path to profitability is unclear. It called Paytm's business model problematic, stating that the business generates very low revenues for every dollar that is spent towards marketing. 

Parth Nyati of Tradingo also said that there is no sign of the company turning profitable in the near future as it has been loss making, and that due to the high valuation it sought, there will be a correction in the near term. 

“New investors are advised to look for other opportunities where other new edge companies can perform much better than Paytm. We feel due to the brand the company sought high valuation and it might see a correction in the near term,” he said. 

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