India's Paytm crashes in market debut, business model questioned

Despite fears that Paytm's market debut might be less than stellar, its steep plunge was astonishing, as shares changed hands at 1,614 rupees in afternoon trade versus the offer price of 2,150 rupees, valuing the firm at about $14.2 billion.

Then shares hit the lower circuit limit of 1,564 rupees on the Bombay Stock Exchange, which restricts purchases by investors to only that price or higher.

Founder and CEO Vijay Shekhar Sharma, who was visibly crying with joy at the opening ceremony, later told Reuters that he was unperturbed by the slide and did not regret listing in India.

"One day does not decide what our future is," he said. "It is new business model and it takes a lot for somebody to understand it straightforward... there is a lot for us to bring to the markets and the market participants."

Paytm, backed by China's Ant Group and Japan's SoftBank (9984.T), grew rapidly after Uber listed it as a quick payment option in India and has expanded into a plethora of services - insurance and gold sales, movie and flight ticketing, bank deposits and remittances.

Paytm expects it could break even by late next year or early 2023, a source familiar with the matter told Reuters in July, though the company said in its prospectus it expected to make losses for the foreseeable future.

Investors and analysts on Thursday appeared to lack faith. "Paytm's financials are not very impressive and the growth prospects seem limited... obviously the company lacks a clear path to profits," said Shifara Samsudeen, a LightStream Research analyst who publishes on Smartkarma.

The company reported a loss of 3.82 billion rupees ($51.5 million) in the quarter ended in June, wider than a loss of 2.84 billion rupees for the same period last year.

But Sharma said the company could turn profitable when it did not need to invest "so much more" to fuel growth opportunities. "That's the quarter that you will call break-even," he added. "But that break-even will not mean that we are perpetually going to say the same."

Although Paytm's $2.5 billion offering was priced at the top of the indicative range, demand was much weaker than other recent stock sales, as Paytm has lost some market share to Google and Flipkart's PhonePe.

It raised $1.1 billion from institutional investors and last week it received $2.64 billion worth of bids for the remaining shares on offer, or a relatively low oversubscription level of 1.89 times. read more

Many market participants saw the stock's horrendous debut as a sign that investors had become disillusioned with a recent string of IPOs with inflated valuations.

"Most of the domestic institutional investors appear to have skipped the IPO," added Aequitas Research director Sumeet Singh, who publishes on Smartkarma. He said that the stock was offered at 27 times enterprise value/gross profit for fiscal 2024, more expensive than the 21.3 times for Zomato Ltd and 23 times for Sea Ltd.

He also noted both Ant and SoftBank had cut their shares in the offering. Ant reduced its stake to 23% from 28% and SoftBank's Vision Fund pared its holding by 2.5 percentage points to 16%.

Paytm's listing could bring "an end to obnoxious pricing in IPO markets", said Mumbai-based investment adviser Sandip Sabharwal.

Compared to Paytm's lacklustre debut, food delivery firm Zomato Ltd surged 66% at its July debut after raising $1.2 billion. More recently, shares in FSN E-Commerce Ventures, which owns cosmetics-to-fashion platform Nykaa, jumped 80% on its Nov. 10 debut, following its $700-million IPO. 

Paytm's success has turned Sharma, a school teacher's son, into a billionaire with a net worth of $2.4 billion, Forbes says. Its IPO has also minted hundreds of new millionaires in a country where the income per head is below $2,000. 

Morgan Stanley, Goldman Sachs, Axis Capital, ICICI Securities, JPMorgan, Citi and HDFC Bank were the book running lead managers, Paytm's prospectus showed.