The share price of Indian fintech company Paytm fell by more than a quarter when it debuted, and its valuation has evaporated by US$5 billion, highlighting investors’ unease about the group’s business prospects.
Paytm raised US$2.5 billion in the initial public offering, valued at US$20 billion, and its largest investors, Ant Group and SoftBank, and founder Vijay Shekhar Sharma sold shares in the company.
This 11-year-old company has sold itself to India, which is equivalent to Chinese financial groups such as Ant Financial. Its business scope ranges from mobile payments, fantasy sports to gold trading.
But the IPO has attracted tepid investor interest, and domestic institutions, including mutual funds, are skeptical of their path to profitability and their ability to compete with technology giants such as Google.
As of noon on Thursday, Paytm’s share price had fallen by 26% to a low of 1,591 rupees ($21.40).
This IPO is the most important in a series of listings conducted by a loss-making, high-valued Internet start-up in India. The shares of food delivery company Zomato, beauty e-commerce group Nykaa and insurance aggregator PolicyBazaar have all increased from their offering prices.
Paytm’s performance in the next few weeks will be seen as a measure of the extent to which open market investors will support money-burning technology companies in order to achieve future wealth.
Vasudev Jagannath, head of sales at brokerage firm IIFL Securities, said: “If its valuation remains the same, it will truly prove that investors understand the business model.”
Paytm is a pioneer in the field of mobile payments, but its market share has been robbed by foreign competitors such as Google and Walmart’s Indian e-commerce company Flipkart. Its recent attempts to enter new business areas have yet to bear fruit.
Supporters of Paytm-with 50 million monthly active users-say the company is in a good position as fintech services become more widely adopted among Indian consumers due to rising revenue and Internet penetration.
But critics say it has almost no competitive advantage. Brokerage firm Macquarie Research stated that Paytm has “too many fingers in too many pies” and has set a 12-month target for the stock at 1,200 rupees.
“Most of what Paytm does is Amazon, Flipkart, Google and all other large ecosystem participants,” Macquarie wrote.
Macquarie added that Paytm does not have the necessary license to start lending, which is the most profitable business of the fintech group.
“The addressable landscape is huge. The problem with fintech is that the competitive environment has become increasingly fierce,” said Jagnart.
This year, the Indian stock market performed best among the large Asian markets, with the benchmark Sensex index of the Bombay Stock Exchange rising by more than 25%. The growth of private fundraising in India has also surpassed that of China.
However, Paytm’s valuation is 43 times its 2021 sales, and its valuation continues to rise, which makes some investors worry about the market overheating.
The head of Asian equity capital markets at a Wall Street investment bank involved in the transaction said that absorption was “very slow” during the IPO’s book construction period. “There is always a deal that will be reached where they challenge the limit, but it is not entirely effective,” he said.
After Paytm, many other companies are expected to go public in the coming months, including SoftBank-backed hotel group Oyo and ride-sharing company Ola.