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

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MUMBAI, Nov 18 (Reuters) - Indian digital payments firm Paytm (PAYT.NS) tumbled 25% on its maiden day of trade, with investors questioning its lack of profits and the lofty valuations it gained in the country's largest-ever IPO.

While there had been some expectations that Paytm's market debut could underwhelm, the steep plunge on Thursday was astonishing.

Shares were changing hands at 1,614 rupees in afternoon trade versus the offer price of 2,150 rupees, valuing the company at around $14.2 billion.

A decline to 1,560 rupees - the level representing a 20% decline from its open - would trigger the exchange's circuit breaker and halt trading for the day.

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 (UBER.N) 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.

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 (ZOMT.NS) and 23 times for Sea Ltd (SE.N).

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", Mumbai-based investment advisor Sandip Sabharwal said.

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

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

($1 = 74.355 Indian rupees)

Reporting by Nupur Anand in Mumbai, Sankalp Phartiyal in New Delhi and Vishwadha Chander in Bengaluru; Additional reporting by Scott Murdoch, Chandini Monnappa, Abhirup Roy and Savio Shetty; Editing by Edwina Gibbs

Our Standards: The Thomson Reuters Trust Principles.

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