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Paytm: Markets Reject Fancy Valuation

By Linus Garg
First publised on 2021-11-19 02:39:06

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

Given the size of the IPO, the lack of investor interest evident in the application data and the grey market sentiments, it was expected that the shares of Paytm would open weak on listing. But the extent of fall on listing day has surprised many experts and has started a debate about the frenzy surrounding IPOs and the valuation of companies, tech and otherwise, that have been coming out with issues at a hefty premium.

Paytm had issued shares at Rs 2150. It listed at Rs 1950, a plunge of 9.3%, reached an intra-day high of Rs 1955 but plunged 27.25% to Rs 1564 at close. This was the worst ever debut performance of IPOs over Rs 1000cr. It wiped out investor wealth Rs 38000cr on opening day. The sentiment was weak and with the shares hitting the lower circuit on the day, any immediate bounce back is not on the cards.

While Paytm founder Vijay Shekhar Sharma has said that investors do not come for a day, industrialist Anand Mahindra has drawn attention to the frenzy surrounding IPOs in general and has said that companies will get their true value in time. This perhaps shows that although marquee investors plough funds in loss-making tech startups at fancy valuation, the markets are not impressed with such high valuations and have their own calculations.

But although Paytm is a loss-making company as of now, given the exponential growth in the digital payments space and the fact that Paytm was a pioneer, the company is likely to make profits very soon. But for that to happen, it will have to focus on core competency and cut costs. The competition is also hotting up with many new players coming with a leaner and more robust model of business. Still, at these levels, Paytm’s shares are a good bargain for the long term investor. But investors should wait and watch and buy only when the shares find a stable price. 

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