The listing of Paytm operator One97 Communications that is set to take place on November 18 is an event that is being keenly watched, especially after witnessing tepid response from investors against sky-high expectations before the offer opened for subscription.
Overall, experts anticipate a muted listing for the leading digital payments platform on Thursday given the lukewarm initial public offering or IPO subscription, falling grey market premium, high valuations and tough competition going ahead, despite it having a high brand recall and a strong service network.
The Rs 18,300-crore public issue of One97 Communications, the largest ever in Indian capital market history, was subscribed 1.89 times during November 8-10 due to lower-than-expected response in the qualified institutional buyer and high net-worth individual (HNI) categories. The portion set aside for qualified institutional investors was subscribed 2.79 times and that of non-institutional investors saw 24 percent subscription, while the retail investors' portion was booked 1.66 times.
“We expect flattish to 10 percent listing gains for Paytm on Thursday. The market sentiments are not robust, enterprise value (EV)/sales valuations are on the higher end. The grey market premium of Rs 30 also points towards a flattish listing,” said Divam Sharma, co-founder of Green Portfolio, an investment management firm.
Abhay Agarwal, founder and fund manager at portfolio management services provider Piper Serica Advisors, sees a weak listing. “I will not be surprised to see the stock trade below the issue price and stay there in the foreseeable future” he said.
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He added, “While the company has a well-known brand name and its service is omnipresent, the IPO is quite aggressively priced, not leaving much on the table for investors. Unlike Zomato and Nykaa, Paytm is in a very competitive space which will reduce its ability to grow profitably for quite a long time. The IPO saw poor response from HNIs and we do not expect any aggressive buying to emerge even at a lower price.”
The trading premium of the Paytm IPO in the grey market has been around Rs 20-30 ahead of the listing, down from Rs 125-150 levels seen before the subscription opened.
Currently Paytm shares traded at Rs 2,170-2,180 each in the grey market against its final issue price of Rs 2,150 per share, as per IPO Central and IPOBazar.
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This is far lower compared with recently listed as well as ongoing IPOs. Go Fashion, Tarsons Products, Latent View Analytics and Sapphire Foods traded with premiums of 58 percent, 30 percent, 183 percent and 5 percent in the grey market, respectively, according to data from IPO Central.
“The business model looks stable and promising. However, falling grey market premium from Rs 125 per share to Rs 30 per share indicates that there is going to be a muted listing. The company has not made profits so far and I believe that it will take some time for it to actually get there. It is to be seen as to how the company cross-sells other product offerings to its large consumer base (including merchants),” said Gaurav Garg, head of research at CapitalVia Global Research.
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“There are chances that the stock might list at discount,” he added.
Paytm posted a consolidated loss of Rs 1,701 crore for the year ended March 2021, narrower that the loss of Rs 2,942.4 crore in FY20, and a loss of Rs 4,230.9 crore //in FY19//. Total income fell sharply to Rs 3,186.8 crore in FY21 from Rs 3,540.7 crore in FY20 and Rs 3,579.7 crore in FY19.
On a quarterly basis, the consolidated loss widened to Rs 381.9 crore in Q1FY22, from a loss of Rs 284.4 crore in Q1FY21; however, revenue increased sharply to Rs 948 crore from Rs 649.4 crore over the same period.
One97 Communications will utilise net proceeds from its fresh issuance of shares to grow and strengthen the Paytm ecosystem (Rs 4,300 crore), and investing in new business initiatives, acquisitions and strategic partnerships (Rs 2,000 crore).
It is India's leading digital ecosystem for consumers and merchants as it has built the largest payments platform in India based on the number of consumers, merchants and transactions, and also in terms of revenue, as of March 2021. It offered payment services, commerce and cloud services, and financial services to 33.7 crore registered consumers and over 2.18 crore registered merchants as of June 2021.
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