Mumbai: India’s largest IPO of One97 Communication owned digital payments firm Paytm worth ₹18,300 crores has left investors in agony. After Paytm stock subscribed 1.89 times last week, on Thursday it opened for trading at ₹1,955 on BSE – a bit lower than its IPO price of ₹2150.
Throughout the market hours, Paytm share remained volatile and lost its footing unexpectedly. The unsteady stock kept the investors much worried as Paytm stock fell 27.25% (- ₹585.85) from its IPO price (₹2150) to end the trading session at ₹1,564 on BSE.
Certainly, Paytm stock’s 27% plunge on debut was far from expectations and turned into a shocker for the investors as it wiped out Rs 38,000 crore worth of their wealth.
On NSE, Paytm share opened at ₹1,950 with a market cap of ₹1.39 lakh crore. But after its share slipped 20% (- ₹390) from the opening price, Paytm’s market cap shrunk to ₹1.01 lakh crore. The stock closed at ₹1,560 on NSE.
During this week so far BSE and NSE have remained in the red. The negative impact has been visible on the many stocks including the debutant Paytm. However, market analysts and experts have blamed the expensive valuations of Paytm as one of the many reasons which triggered the downfall of its stock price on debut.
The digital payments firm‘s business model already has come under some scrutiny from experts.
According to an analyst’s note from Macquarie Research, Paytm’s business model lacked focus and direction and initiated coverage with an underperforming rating. Achieving scale with profitability is a big challenge.
Macquarie Research’s analyst called Paytm a “cash guzzler” and there’s a strong reason behind it. Paytm’s business model largely revolves around cashback for transactions done on its payments app.
Basically, it’s a cost the company is paying to acquire a customer, which over a period of time will impact revenue margins along with profits.
One97 Communication Ltd owned Paytm founded by Vijay Shekhar Sharma is a billionaire with a net worth of $2.4 billion, but Paytm stock debut has not been profitable for its investors. It failed to offer the investors the much-expected listing gain in short term.
According to Tradingo’s Founder Parth Nyati, One97 Communication owned Paytm has been loss-making and there is no sign to turn profitable in near future.
“Aggressive investors who got the allotment can hold the stock with a long-term view however the investors who applied for listing gain can exit on the bounce back. New investors are advised to look for other opportunities where other new edge companies can perform much better than Paytm,” said Nyati.
Paytm witnessed a weak listing as the company is overvalued at a price-to-sales (P/S) of 26 times as compared to global peers at 0.3 -0.5 times P/S, according to Proficient Equities’ Founder and Director Manoj Dalmia.
“Besides, 75 per cent of promoters are from other countries and are selling stakes by the offer for sale worth Rs 10,000 crore which is more than 50 per cent of IPO value,” said Dalmia.
On a weaker debut, Paytm stock has failed to get a good start and that’s going to haunt the company in the long run.