Paytm, India’s Biggest-Ever IPO, Crashes 27% on Debut
Moneylife Digital Team 18 November 2021
The much-hyped initial public offering (IPO), which was oversubscribed by 1.89 times, saw Paytm listing below 9% of its issue price. One 97 Communications Ltd (Paytm) ended the day 27.25% or Rs585 down against its issue price on the BSE. The listing day debacle of Paytm reminds listing of Reliance Power Ltd, a lesson for investors that big names are no guarantee of big returns. But more about it later.
 
On Thursday, Paytm opened at Rs1,955, but soon the scrip started moving downward before hitting a low of Rs1,586.25 on BSE. It hit its lower circuit and then closed 20% or Rs390, down at Rs1,564.15 against its opening price of Rs1,955.
 
Paytm, when listed, was expected to be one of India’s most valued companies with a valuation of a whopping $20 billion. 
 
One 97 Communications is a loss-making company as it declared a net loss of Rs4,230 crore, Rs2,942 crore and Rs1701 crore for FY18-19, FY19-20 and FY20-21, respectively.
 
As reported by Moneylife, Paytm demands a price-to-sales (P/S) multiple of 39, based on its annualised Q1FY21-22 sales, not profits. The company is consistently reducing its operating losses and is on its way to achieving operating profit breakeven. However, its exorbitant valuation already prices in the expected improvement in its profitability. For Paytm to justify its valuation, it will need to demonstrate a strong track record of top-line growth while achieving operating profit breakeven. This may be several years away. (Read: IPO Analysis: Paytm)
 
Paytm’s banking products and services such as Paytm Wallet, Paytm UPI, NACH, Paytm FASTag  and fixed deposits (FDs) are offered on the platform from Paytm Payments Bank. However, Paytm owns only 49% of Paytm Payments Bank, while 51% is owned by Paytm’s founder, Vijay Shekhar Sharma. As a result, Paytm does not have operational control over Paytm Payments Bank, the services of which constitute a major chunk of Paytm’s products and services.
 
The payment services industry is intensely competitive with large and well-funded players like Mobikwik, Freecharge and Phonepe. Moreover, mobile wallets are expected to become inter-operable by FY22-23, further increasing the competitive intensity among payment services-providers. This could further delay Paytm’s path towards attaining operational breakeven.
 
The Paytm IPO had seen surplus demand rushing in as qualified institutional buyers (QIBs), domestic institutional investors and mutual funds bid on the final day of the IPO offer.
 
Paytm closed India's most significant anchor round on 3rd November as it raised Rs8,235 crore. Blue-chip global investors and tech-focused funds have made their first-ever investment in Indian public markets through the Paytm IPO, while investment giants like Blackrock, CPPIB and GIC have made their largest bets in an Indian IPO.

The company has also attracted the world's top pension funds, superannuation funds as well as sovereign wealth funds like the Government of Singapore, CPPIB, ADIA, APG, City of New York, Texas Teachers Retirement, NPS Japan, University of Texas, NTUC Pension out of Singapore, and the University of Cambridge.

The largest emerging markets dedicated investors like Standard Life Aberdeen, UBS and RWC have also taken part in Paytm's anchor round.
 
Historical records have proven that when it comes to large IPOs, while retail investors bet on the first day, QIB and high-net-worth individuals (HNIs) invest in the later days of the subscription.
 
Earlier on the first day, Paytm’s IPO had secured the highest-ever retail percentage subscription for IPOs with retail sizes over Rs1,000 crore over the last decade, which was subsequently oversubscribed early on the second day.
 
Coming back to the much-hyped issue of Reliance Power, at Rs11,700 crore, it was the largest Indian IPO at that time. It was priced at Rs450 per share and got oversubscribed 73 times. However, on 11 February 2008, the scrip opened to a disastrous listing. Far from quoting at the expected price of Rs1,000 and allowing everybody to make tonnes of money, it tanked to as low as Rs355.05 and closed at Rs372.50, down 17% from the issue price on the day of listing.

Today, Reliance Power closed 2.45% down at Rs13.52. The scrip had hit a 52-week low of Rs2.92 on 19 November 2020 and a 52-week high at Rs18.36 on 23 June 2021.
 
Comments
saharaaj
1 week ago
a little lag on learning curve and excessive exuberance from Young blood
S K Nataraj
2 weeks ago
Whats SEBI\'s role as an investor protector?
SEBI should not have given the go-ahead at such price as was fixed, and should have insisted on reduction in the issue price.
Paytm , remember has a past three years loss record. Its not certain when it will breakeven and start recording profits.
cjninan
Replied to S K Nataraj comment 2 weeks ago
Sir, why should SEBI try to come and protect the retail investors. The writing was on the wall. The IPO price was 2150 for a company which was loss making since inception. For this price you could buy Infosys and other well established company. There is some responsibility that retail investors should do as well. I am sure when you invest you will do some checking and in this case all the negatives was well mentioned.
Kamal Garg
Replied to S K Nataraj comment 2 weeks ago
Now in the age of "free economy" and "minimum governance" , SEBI does not have legal power to fix the price of any IPO. It was within the ambit and authority of Comptroller of Capital Issues (CCI) the earlier avatar of SEBI which had the legal authority to fix the price of an IPO.
Now, SEBI only ensures that all the risks and disclosures are made. And mind it, all such risks and disclosures are made upfront, but, nobody reads them.
And as per one report, after issue of bonus shares, etc, the acquisition price of the promoter would be even less than Rs. 10.00 per share.
Kamal Garg
2 weeks ago
It should set an important and grim reminder to every body on the mad, maniac and crazy rush for IPO application. Settling at 27% discount to the issue price will ring in the ears of the investors for a very long time.
cjninan
Replied to Kamal Garg comment 2 weeks ago
It is not that retail investors are so naive and innocent. They wanted to make listing gain and this is the only reason why a retail investor will apply for IPO. All the risk were clearly mentioned, the retail investor thought they will double the money on listing date. This did not happen and hence the distress. Did anyone buy this share as a investment.
ganesanjaicare
2 weeks ago
Merchant bankers and promoters should be booked under cheating forgery fraud and barred from capital markets. Names are un ending zomato nykaaa policy bazaar
cjninan
Replied to ganesanjaicare comment 2 weeks ago
But Why, Just why they should be booked. Assume you have a house and you intend to sell, when you know there is ample demand will you not ask for an exhorbitant price knowing very well well that the house is not worth this much. This is the same way IPO market will function. Quite a chunk of shares were on OFS which means that the original promoters were selling and taking cash out and to be reinvested in the company. All this facts were well know and retail investors wanted listing gains and hence invested.
dharmarajan0
2 weeks ago
We have to see whether it will destroy other companies share prices too.
m.muralidharan
2 weeks ago
When everyone who applied got the allotment, how can there be any kind of premium? Socialism will not give any gains.
Kamal Garg
Replied to m.muralidharan comment 2 weeks ago
Liked the comment "socialism will not give any gains".
virendrajain174
2 weeks ago
PAYTM IPO : Reminds me of Reliance Power Rs.10,123 in 2008 IPO, till then the biggest IPO is the Indian stock market. 10/- equity share was priced @ 450/-. Its IPO turned out to be the 2nd biggest wealth destroyer of the decade.
It received a massive over-subscription; 50 lakh investors subscribed it over 61 times with 446 QIB over-subscribing it by 82 times. Cumulatively, this meant applications for a staggering amount of over Rs.6,10,000 crore! On the opening day of listing its price crashed. Next day Parliamentary Standing Committee on Finance took up the issue (IT WAS NOT ON THE AGENDA) and expressed their concern. I happened to be one one of the invitees in the meeting and drew the Committees" attention to rampant loot enabled by free-pricing policy and inadequate disclosures not reigned-in by SEBI, among others.
sathya2011
2 weeks ago
There seem to be a disconnect between the pricing and reality. It is evident that the regulators do not have much control and they are helpless. The mere caution given to retail investors may not help.
ganesanjaicare
2 weeks ago
Better controller of capital issues re introduced.companies robbing in daylight in the name of free pricing .indian investors not at all well versed in Equity investing despite various magazines and internet and media.
jusojosu
2 weeks ago
@editor
The Paytm IPO analysis page linked on the article is still behind a paywall.

It will be a good idea to open these IPO analysis reports to all readers after the IPO subscription is closed. Once the ipo subscription is closed these ipo analysis content offers no premium value, making it free thereafter gives an opportunity for us readers to assess the quality of these reports.
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