Earlier in November, Paytm founder Vijay Shekhar Sharma traveled to Tirupati in hilly southern India. Its temple, famous for promoting fortune and its own riches, was a suitable place for Sharma “to seek [the] God’s Blessing ”before launching India’s largest IPO to date.
The listing did not follow the script this week with shares in fintech falls more than a third in its first two days as a public company, making it one of the worst debuts in the history of the Indian stock market. The shares in the group, which raised DKK 2.5 billion. USD and was valued at 20 billion. USD, has since risen, but is still about 17 percent below the issue price.
Debaclet has focused on Paytm, its shareholders SoftBank and Alibaba and bookrunners on the listing, including Goldman Sachs, Morgan Stanley and Citigroup. It has also sparked concern from investors and entrepreneurs, fearing it could derail a number of anticipated Indian listings that would cement the county’s status as a leading destination for tech start-ups after the US and China.
“The concern for all of us is whether this is affecting the broader Indian sense of technology? A bad trade and a case of poor judgment could upset the apple cart,” said the head of the stock markets for India at a Western bank. “The assessment will be very difficult.”
MobiKwik, an Indian fintech company, has delayed its IPO, which was originally scheduled for November, and said this week that it will “list at the right time”.
Ashneer Grover, co-founder of fintech BharatPe, said Paytm had “spoiled” the Indian market. “Nothing can come of this market,” he told the website Moneycontrol.
Sandeep Murthy, a partner at investment group Lightbox in Mumbai, said there may be “a period of cooling” in fintech listings until early next year, but argued it was “natural”.
According to Dealogic, Indian technology companies have raised a record $ 5 billion. through IPOs this year, about 10 times last year’s total. The country has emerged as a leading recipient of a persistent regulatory repression of technology companies in China that prompted international investors to seek elsewhere.
The food delivery company Zomato, which was listed on the stock exchange in July, overcame skepticism about its cash burning and valuation, as the share doubled compared to the listing. Shares in insurance aggregator PolicyBazaar and beauty platform Nykaa have also risen since their debut earlier this month.
But Paytm’s much larger IPO, which accounts for about half of the total amount raised through Indian technology IPOs this year, risks overshadowing others.
Founded 11 years ago, Paytm has grown to become one of India’s most recognizable tech brands thanks to its mobile wallets. The charismatic Sharma attracted leading international investors, including Alibaba founder Jack Ma, Warren Buffett and SoftBank CEO Masayoshi Son.
But the introduction of the Indian government UPI digital payment infrastructure undermined its core business, with Google and Walmart-owned PhonePe now market leaders. Paytm has diversified into everything from investment to insurance, but faces better established competitors in each sector and lacks clear areas of strength, analysts say.
Its core business is not making money, and a move to cut marketing spending indicated it was trying to show a better bottom line before listing, said Prashant Gokhale, the Hong Kong-based co-founder of research group Aletheia Capital. “There was a lot of hype with SoftBank and Warren Buffett there,” he said.
A person with direct knowledge of the discussions that Paytm had about listing prices said that there were too many liquidity-chasing deals, especially with the embezzlement in China that has made India more attractive as a destination.
“Investors are desperate for places to go, which pushed prices up without improving the fundamentals,” the person said. “A lot of money chasing the deal that didn’t get it is probably happy now.”
Paytm’s large Chinese ownership also poses a regulatory and reputational risk, after India imposed strict restrictions on Chinese investment following military tensions last year. While Alibaba and its financial arm Ant sold shares in the listing, they together own almost a third of the company.
The debut has drawn comparisons with the disastrous IPO of Reliance Power in 2008, which raised a record $ 1.5 billion. before the plummeted 17 percent on the first trading day. Its shares have never recovered, and this week they traded 95 percent below their issue price.
Madhur Deora, Paytm’s CFO, told the Financial Times that the company would “focus on our performance… How it translates into valuation and stock price and so on, it’s obviously up to investors to decide.”
Some argue that Paytm’s painful debut could ultimately prove to be a blessing if it makes investors look at other richly valued and highly hyped Indian technology companies with some skepticism.
“What was at least encouraging to me [was] to see that the market was not in a state of irrational abundance, ”said Lightbox’s Murthy about the company’s debut. “If a market blindly valued things, it would [be] a greater challenge in the future. ”
An analysis by Goldman Sachs found that the Indian companies that are potential IPO candidates had an average price-to-sale ratio, a measured value used to value companies, of 21 over the past three years, compared to three for groups across India’s benchmark Nifty index.
Among the most prominent upcoming ads is the budget hotel group Oyo, which submitted a draft prospectus to raise 1.1 billion last month. CEO Ritesh Agarwal, backed by SoftBank, tried to make Oyo the world’s largest hotel company only to sharply reduce its ambitions in the face of a liquidity crisis.
Fellow SoftBank portfolio company Ola, an interconnection group, also plans to submit a prospectus in the coming months. The company is now focused on manufacturing cheap electric scooters, but the delivery of the new bikes has been repeatedly delayed.
“The valuation is moving forward,” said Mohit Nigam, a fund manager at Hem Securities in Mumbai. “We as investors need to be careful ahead of the upcoming IPOs because these guys, no matter how good their business is… You can not overlook profits and cash flows.”
Rajan Anandan, head of Sequoia Capital India, argued that it was too early to judge Paytm’s long-term outlook, but acknowledged that technology assessments in India and abroad were in danger of falling back.
“At some point, there will be a correction in public and private markets,” across the technology sector, he told an FT-Indian Express event this week. “When that happens, it will affect everyone.”
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