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PayTm IPO the Worst Performing Large IPO in the Last 10 Years Globally

One 97 Communications Ltd., the owner of India's largest digital-payments service branded Paytm, has scored the worst initial share slide among significant IPOs over the previous decade, and the agony is getting worse.

Photo by Samuel Sascha Mayer / Unsplash

One 97 Communications Ltd., the owner of India's largest digital-payments service branded Paytm, has scored the worst initial share slide among significant IPOs over the previous decade, and the agony is getting worse. This happened at the end of the first year of trading for the company.

One year after its $2.4 billion offering, India's biggest on record, the business has seen its share price lose 75% of its market value. The founder of the firm, who equated its obstacles to those suffered by Tesla Inc. briefly after the listing, was quoted as saying as much.

According to data collated by Bloomberg (1), the plunge represents the biggest first-year decrease internationally among initial public offerings (IPOs) that raised at minimum the same amount since Spain's Bankia SA's 82% collapse in 2012.

After making its debut when India's initial public offering market was enamored with internet firms, Paytm has had a difficult first anniversary, highlighting a loss of trust in the company's ability to become successful. It is one of many startups listed with values that many people consider excessively high.

This week, the company's stock has declined in response to rising fears around the possible entry of a new competitor that India's largest conglomerate owns. As a lock-up period specified in the IPO came to an end last week, Japan's SoftBank Group Corp. sold some of the shares it held in Paytm, which contributed to a decline that lasted for three days.

The fall from its initial public offering (IPO) price of Rs. 2,150, which occurred in November and was 30%, is now 79%.

Chart of Paytm Price. Source: Tradingview

Investors are avoiding companies losing money because of the worsening macroeconomic situation, which has led to a global selloff in technology stocks. Analysts at JM Financial Ltd., led by Sachin Dixit, wrote about their findings in a report this week.

"This input has been warmly welcomed by firm management, and we are seeing all Indian online companies not just prioritizing profitability but also openly communicating the road forward," they said. "We are seeing all Indian internet companies prioritizing profitability."

After an offering that generated significant interest from both individuals and investors, Paytm shares were sold at the highest possible price in the marketing range; however, they never traded at a price higher than the listing price. Major global stock selectors such as BlackRock Inc. and the Canada Pension Plan Investment Board expressed interest in purchasing shares during the sale.

Shridatta Bhandwaldar, in charge of equity investments at Canara Robeco Asset Management, stated that

"with every rise, the market as a whole gets too enthused about anything. From 2006 to 2008, we became overly enthusiastic about the building and capital goods industries. In 2013–2014, we showed excessive enthusiasm for midcaps. Between 2017 and 2019, we were quite enthusiastic about non-banking financial enterprises. Between the years 2020 and 2022, people were far too enthusiastic about technology."
"Some of these companies have good business models," he said, adding, "yet, you feel there is not enough margin of safety since these are changing businesses. Some of these companies have solid business models," he said.

The Initial Launch of Paytm IPO

In what was India's largest-ever initial share sale since Coal India's in 2010, Paytm announced its initial public offering (IPO) for subscriptions in November of 2021. (2)

Anchor investors contributed $2.46 billion (Rs 18,300 crore) to the initial public offering (IPO). These investors included BlackRock, the largest asset management company in the world; the Canada Pension Plan Investment Board; and the sovereign wealth funds of Singapore and Abu Dhabi. Anchor investors contributed roughly half of the total funding that the company raised.

It was one of India's most successfully funded firms, having received funding from notable investors like Warren Buffett, Masayoshi Son, and Alibaba. Since then, experienced and inexperienced investors alike have been keeping a close eye on the company since it went public.

However, when it was officially launched, the company had one of the worst big stock market debuts, as its shares dropped by more than 27 percent (3). As the price continued to fall, it was only when Paytm shares approached levels that would cause a circuit breaker to activate on Indian exchanges that it came to a halt.

Many market players saw Paytm's decline as an indication that investment groups had become dissatisfied with the company's lofty prices.

The magnitude of Paytm's price drop shocked several more shareholders and managed to wipe more than $5 billion off the company's IPO valuation. However, some shareholders have called into question Paytm's scarcity of profits and its lofty valuation of approximately 27 times gross profit.

Vijay Shekhar Sharma serves as the corporation's Founder and chief executive officer.

The company earns its revenue through the following revenue streams:

Services for Making Payments:

Paytm customers are subject to transaction fees, also known as merchant fees, calculated as a percentage of gross merchandise volume (GMV). Additionally, it generates revenue from consumer, convenience, and subscription fees.

Financial Services:

It levies a price for its services, the amount of which is determined by the customer's needs. It also receives a commission on insurance policies and a fee from the lending company and charges fees for the marketing and distribution of credit cards.

Services Relating to Commerce:

On tickets for entertainment, travel, and other services of this kind, it charges convenience fees to customers and receives transaction fees from the businesses that sell the tickets.

Provided by the Cloud:

A subscription fee is required to use the Paytm platform, and this price can be either set or variable, depending on the volume of transactions processed through the platform.