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Despite having just completed the country’s largest-ever IPO, Paytm’s stock dropped 24% on its first day of trading, as investors questioned the loss-making digital payments company’s business plan.
The Ant Group-backed company was valued at about 1.07 trillion rupees ($14.4 billion) in morning trade, with shares changing hands at 1,645 rupees versus an offer price of 2,150 rupees.
If it drops below 1,560 rupees, it will trigger the exchange’s 20% circuit breaker, halting trading for the day.
“Paytm has been losing money for a long time and shows no signs of turning profitable any time soon,” said Parth Nyati, the founder of Indian trading site Tradingo.
Paytm, which has SoftBank as a partner, raised $2.5 billion in its IPO, with $1.1 billion coming from institutional investors. It received bids totalling $2.64 billion, or 1.89 times, for the remaining shares on offer last week.
Paytm’s business model lacks “focus and direction,” according to Macquarie Research analysts, who commenced coverage with an underperform rating. The memo described the company as a “cash guzzler” and stated that “achieving scale with profitability is a significant problem.”
The stock’s drop on its first day of trading was interpreted by many market players as an indication that investors had grown disillusioned with a recent string of IPOs with inflated values.
Paytm’s IPO could put an end to “obnoxious pricing in IPO markets,” according to Sandip Sabharwal, a Mumbai-based investment advisor. He said that too many of the firms did not have a clear route to profitability.
Paytm was launched in 2010 as a platform for mobile recharges by Vijay Shekhar Sharma, an engineering graduate. After Uber listed it as a speedy payment option in India, the company developed quickly, and its use surged even further in late 2016, when New Delhi’s surprise ban on high-value currency notes encouraged digital payments.
Sharma, the son of a schoolteacher, has become a billionaire thanks to Paytm’s success, according to Forbes, with a net worth of $2.4 billion. In a country where per capita income is less than $2,000, its IPO has created hundreds of new billionaires.
