Moneycontrol Pro Panorama | Paytm's listing fiasco a jolt for the IPO market

Paytm

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Shares of Paytm, the largest and most hyped initial public offer (IPO) in recent times, nosedived by 25 per cent from the issue price of Rs 2,150 apiece, within hours of listing. As the stock tumbled, social media platforms were flooded with messages on the “listing loss” to various stakeholders in One 97 Communications that owns Paytm. Estimates range from Rs 15,100 crore loss for QIB (qualified institutional buyers) investors to around Rs 440 crore for the retail investor (at the traded price of Rs 1,630 per share).

Besides burning a hole in investors’ pockets, the disastrous listing is a wake-up call for retail investors, too. Signs of weak appetite could be gleaned from the sluggish subscription pace although the issue got fully subscribed on the final day. Some market veterans attributed the large issue size of Rs 18,300 crore as a key reason for the tepid response to the IPO, besides the host of fintech issues that preceded Paytm and absorbed investor funds.

Interestingly, the listing debacle shows that while lay investors may not pore over the draft red herring prospectus and complex balance sheets, they can be discerning. Nykaa, which is among the few profitable e-commerce IPOs, and Zomato that has an edge by being an early entrant in the food delivery business have seen sustained investor interest after listing at a premium. In comparison, Paytm’s failing is its presence in multiple business lines that is being criticised by analysts. This could inhibit scalability and profitability in any area of operation. Indeed, a Macquarie report released hours before the listing said Paytm’s business model lacked focus and direction.

Paytm’s listing throws up some important questions for the fintech world. Will investor enthusiasm for the sector wane? Will the funding tsunami that pumped in $6.5 billion through private equity and venture capital routes into fintech companies sustain?

Amid these hits and misses in new-age IPOs, there is action in some old economy giants, too. In a major rejig, Vedanta plans to undo the consolidation of businesses that it undertook less than a decade ago. Note that last year, its promoters failed to buy out the non-promoter shareholding and delist the company.

The new strategy is to break-up individual business -- aluminium, oil & gas and iron ore & steel businesses -- and list them. Will this create value for investors? Read Ravi Ananthanarayanan’s piece here. Not so long ago, the Adani group had taken this path to split ports, power, transmission, alternate energy and incubation initiatives into separate entities to create value.

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Vatsala Kamat
Moneycontrol Pro