Nykaa, Policybazaar, Paytm, and Delhivery get nervy in November as Rs 87,000 crore of shares near lock-in expiry

With 159.67 crore shares of new-age companies Nykaa, Policybazaar, Paytm and Delhivery due for lock-in expiry in November, analysts are of the view that retail investors should exercise caution while trading in these stocks.

According to a Moneycontrol estimate, the new-age shares for which lock-in would expire in November are cumulatively worth over Rs 87,000 crore at current prices, while the combined size of their public issues was around Rs 34,600 crore.

While PE/VC shareholders may look to exit a part of their holdings, they are expected to largely stay put with their investments so as to not scare off retail investors. Already, the four stocks have fallen an average of 19 percent in the last one month, whereas the broader Sensex and Nifty Indices have risen more than 4 percent during the same period.

“I don’t think the PE funds will sell off their investments all at once. Given the current market environment and the fact that most of the new-age stocks are very overpriced, it would be tough to find buyers. They will be lucky to even exit Rs 5,000-10,000 crore of shares of the total pool of Rs 87,000 crore,” said Samir Arora, founder and fund manager of Helios Capital.

“Also, public market investors should keenly watch the track record of any PE/VC selling their holdings in these companies. Are any of the players consistently offloading shares in the public market that drop further after their exit? One should look at these funds like they are promoters,” he added.

When the Zomato lock-in expired in the last week of July, it sparked a sell-off spree as pre-IPO shareholders in the company, such as Moore, Uber and Tiger Global, offloaded significant amounts of stock in the market. As a result, the company’s shares tanked 41 percent in a week at the time.

“The new-age stocks are going through a rough patch anyway. I do not think that PE/VC investors would want to upset the apple-cart at this point in time as there are more tech IPOs waiting to happen,” said an analyst who did not want to be named.

“I would like to think that the amount of shares coming out of lock-in — around $10 billion — is not a large enough amount compared to markdowns in their US and China investments. They have bigger fish to fry,” he added.

In the hot seat

However, several experts believe that these new-age stocks will continue to suffer as they struggle to show profits. As such, pre-IPO shareholders would be looking for a way out as soon as possible.

“There would be more sell-off pressure from PE/VCs who are already sitting on decent profits on their investments. I don’t think anybody is expecting to make super-profits from these new-age stocks, at least for the next 2-3 years,” said Chokkalingam G, founder of Equinomics Research.

Thus, all eyes are on the biggest shareholders in the upcoming expiries. SoftBank has the biggest skin in the game as it owns more than 10 percent of Policybazaar, 17.5 percent of Paytm and 18.5 percent of Delhivery. It has already slowed its pace of India investments this year, and marked down the valuations of portfolio companies such as Oyo.

Industry insiders are of the opinion that the Japanese technology investor will look to pare the bulk of its stakes sooner rather than later as it tries to shore up its returns, after posting a $23 billion net loss in the July quarter and being forced to cut costs.

Next on the watch-list is Tiger Global, which holds a 7.1 percent stake in Policybazaar and 5.2 percent stake in Delhivery. Following the meltdown in tech stocks and its flagship fund taking a hit of 50 percent in the first half of the year, it has already pared holdings in the likes of food delivery company Doordash, stockbroker Robinhood, video conferencing platform Zoom, and crypto exchange Coinbase.

Similarly, Tencent (8.4 percent stake in Policybazaar), Ant Financial (25 percent stake in Paytm) and Nexus (9.1 percent stake in Delhivery) will also be closely followed.

Risky bets

Another point to note is the amount of shareholding of these individual stocks on which the lockin is expiring. While only about 35 percent of Nykaa shares will be allowed to hit the open market due to the large shareholding with promoters, the number is much higher for others: 62 percent for Policybazaar, 86 percent for Paytm and 82 percent for Delhivery.

Analysts also pointed out that while Paytm and Policybazaar went through a steep correction (down 70 percent from issue price), the others have not shed as much. Nykaa is trading 6 percent lower than its issue price, while Delhivery has lost 22 percent of its value.

After Zomato listed on the bourses successfully in July last year, a raft of public issues followed. And they had two things in common — struggling to show profits (except Nykaa, which was just about profitable) and priced at the top end.

In such circumstances, the question that arises is how retail investors should evaluate their bets in these companies.

“Retail investors have already burnt their fingers by participating in the overpriced IPOs of these companies. They might be tempted to buy more and average down their cost of acquisition as the stocks slide, but I do not think it is an ideal time to dabble in these shares now,” said Chokkalingam.

Also, each of them has their individual stories. If Paytm had too many things going wrong from business model to regulatory environment, Policybazaar scared off investors as the top management was selling shares, Nykaa disappointed on the profitability front and Delhivery’s growth engine was sputtering.

“For the foreseeable future, the stock market will value these new-age companies based on cash flow rather than growth. And in such times, pre-IPO investors whose investments are either a little above their cost of acquisition or a little below might be the first ones to head for the exit,” said Ambareesh Baliga, a market advisor to family offices.

But, he wonders, “Who would they sell to?”