Paytm has lost nearly 51% since listing, eroding over Rs 70,000 crore of its market value. At the initial public offering (IPO) price, the firm was worth Rs 1.39 trillion.
At the India Digital Summit recently, Paytm founder Vijay Shekhar Sharma said the company should be benchmarked against non-banking financial services firm Bajaj Finance.
“This quarter we are talking about $100 million revenue from payments, which is...sizable revenue... People underestimate the size of payments revenue,” Sharma, the Paytm CEO, said on ETNow television channel. “Credit is the most monetisable financial service. Bajaj Finance has been there for 30-32 years, Paytm processes more loans than Bajaj today, in less than three years…”
According to Moneycontrol, the period being referred to by Sharma wasn't immediately clear because the last reported data suggests Paytm was behind Bajaj Finance with 4.4 million loans disbursed during the December quarter. Bajaj Finance recorded 7.4 million loans during the quarter under review.
Here are the top five reasons for the decline in Paytm’s share price.
Paytm demanded a 47x price to sales during its IPO and currently trades at 26x because of the correction in its stock price. The high valuation was sought despite the stiff competition in each of its business segments without market leadership in any one of them. Analysts are worried that profitability may be elusive for a long time. Analysts say globally most fintech players trade around 0.3x-0.5x price to sales growth ratio. The IPO raised around Rs18,200 crore, biggest after Coal India’s 2010 initial share sale.
Impact of Federal Reserve’s signals
Recent indications that the US Federal Reserve may increase interest rates earlier than had been foreseen have impaired the valuations of new age/tech companies across the globe.
"Fed tightening and increased tapering are definitely playing out on high valuations. The biggest effect has come on some of the new age, new tech companies in the US and also in India" said Aditya Kondawar, chief operating officer of JST Investments.
ARK ETF in the US, for example, has fallen close to 50% in the past one year and 30% in the last two months.
"Some new age companies demanded a price to sales valuation of 40-70 times during their IPOs! It is expected that as major central banks across the globe go on a rate hike cycle, exorbitant valuations in some pockets of the market are expected to cool down", Kondawar added.
Expected RBI norms
According to reports, the Reserve Bank of India (RBI) has proposed digital payments regulations that could cap wallet charges. Analysts say this space accounts for 70% of Paytm’s revenue and any regulations may impact it significantly. The company wanted to start insurance operations, but its proposal was rejected by the Insurance Regulatory and Development Authority, a development that analysts say could impact its prospects of getting a banking license.
Top management resignations
Three senior officials executives have recently resigned from Paytm. They were Abhishek Arun, chief operating officer (COO) of Paytm Payments Bank; Renu Satti, COO, offline payments; and Abhishek Gupta, senior vice-president and COO. Five senior Paytm executives had quit ahead of its IPO. Amit Nayyar, Paytm president, Rohit Thakur, chief human resources officer, and three other vice-presidents resigned from their posts.
"Senior management attrition is another cause of concern for the firm. The report highlights senior executives have been resigning from Paytm which is a cause of concern and could impact the business if the current rate of attrition continues," an analyst said on condition of anonymity.
Downgrades and cut in target price by brokerages
Recent downgrades by foreign securities firms have dampened sentiment among investors. Macquarie Research retained its underperform rating, but cut its target price by 25 percent on Paytm to Rs 900 from Rs 1,200 earlier. This implies another downside of 28% from its current price. JM Financial also initiated a sell rating on 27 November and given a target price of Rs 1,240 a share.