Why did Paytm fail in IPO debut?

After a long time, we have seen such a weak IPO debut in India – Paytm, a subsidiary of One97 Communication.  When the company announced its plan for a public issue, most of the investors thought it would be a blockbuster IPO, also along with the ongoing trend. The issue price was 2080 to 2150. But on 18th Dec, on the debut day, the price of the company fell to near 27.4% at 1509.  Again on Monday, on the 22nd of Nov Paytm started trading at 10% lower from 1509. As of now when I’m writing this article it is trading below 17% from 1509 (1st day’s closing price), 1290-1300. In two days the wealth of the CEO of Paytm Mr. Vijay Shekhar Sharma has worn down $781 MN.

With today’s decline, Paytm shares are down more than 35% compared to the initial public offering price of Rs 2150. Despite the weak listing Paytm founder Vijay Shekhar Sharma is optimistic about their future journey in the financial market. However, Macquires’ target is somewhat lower at 40 to 44 percent of the issue price.

A little Chronicle of Paytm

Back in 2010, Paytm, or “Pay Through Mobile” was founded by Vijay Shekhar. Initially, the company received $2 million in funding. In 2015, Paytm received a huge investment from the Chinese e-commerce company Alibaba Group, The company has acquired a 40% stake in Paytm as part of a strategic agreement.

In May 2017, Paytm received its largest stake from a single investor, SoftBank, which brought the company’s valuation to around $10 billion. Berkshire Hathaway invested $356 million in 3%-4% interest in Paytm in August 2018. Apart from this Indian investor, Mr. Ratan Tata also invests in this company.

Read more: “OYO IPO Analysis-The Data you need to know before you invest in OYO IPO”

Why did Paytm fail to get a blockbuster IPO?

Paytm, which is owned by One97, lost more than 35 percent of its value on 2 days of trading in one of the worst debuts for a major tech company and cooled what was one of the world’s craziest stock market booms. The IPO has been touted by some as a symbol of the attractiveness of the developing country as a global capital destination, especially for investors seeking alternatives to China.

There are several reasons which experts and investors recommend this fall-

According to Ravi Singhal, vice president of GCL Securities, “Paytm’s profitability is under review as it faces tremendous competition in the market. He also suggested avoiding stocks for new positions from now on. And we have to wait for recovery.

According to some investors, Paytm’s business plan was not clear before going public. The company didn’t come up with a clear plan, model, or financial metrics before its debut.

Even if the valuations of these start-ups are repeatedly questioned, they are rarely checked as long as it is only money from VC and PE funds. But once you offer stock to the public, you open yourself up to all kinds of scrutiny – from both regulators and investors. Every number and every performance counter is cleared. All possible future scenarios are taken into account – competition, prospects, and cash flow. The more noise you make, the more you’ll be under the radar. The same thing happened with Paytm. Analysts and investors did not look at Paytm in person when assessing its IPO. The price issue of Rs 2150 turns out to be a big spoiler for the fintech companies expecting mega subscriptions. By the time there were 200-300 IPOs at the “right” price followed by 50-100% premium advertising, Paytm failed on both occasions.

Conclusion-

Even though investors have met their expectations of new business and do not expect immediate profits. But they are definitely looking for a business model that promises positive cash flow in the future. Investors don’t seem to see much from Paytm, at least in the medium term. This huge decline in Paytm’s share price indicates a changing market situation. This made investors concerned about the valuation of the IPO. Experts believe future tech IPOs may face some drawbacks due to Paytm’s debut.