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Paytm’s IPO debacle: Don’t blame Rio please

The fall in share price of One97 Communications, parent of Paytm, since listing in November 2021 has eroded more than half of investors' wealth. (Photo: AFP)Premium
The fall in share price of One97 Communications, parent of Paytm, since listing in November 2021 has eroded more than half of investors' wealth. (Photo: AFP)

  • India has seen popular consumer tech companies finding their way to the stock market only to disappoint. Zomato and PB Fintech also witnessed rocky stock market debuts, and their share prices have not moved spectacularly subsequently. Both remain loss-making, just like One97 Communications

The whining over the poor stock market performance of One97 Communications, the company that owns Paytm, continues. The fall in the share price since its listing in November 2021 has eroded more than half of investors' wealth. Founder Vijay Shekhar Sharma has, in a public appearance, given a whole laundry list of spoilers, which, he believes, spooked the market and is to be blamed for the stock's damp-squib performance: From negative macro-headwinds at the time of the listing to the 'QE and free money'. The most outlandish of these excuses is a crash in stock prices of South American companies. Unfortunately, blaming it on Rio does not always work.

One97 Communications' market valuation stands at $10 billion, despite its public issue prospectus stating unambiguously that when it would turn in profits cannot be stated clearly. For the quarter ended 30 September, the company reported a loss of 461 crore over revenue of 1,061 crore. While revenue grew over preceding quarters, losses have widened too. By and large, the stock market tends to hunt for profits. The rule of the game is: today's stock prices are a function of tomorrow's profits. Macquarie, an Australian securities firm, has cut the stock's price target to 900, which is less than half of One97 Communications' listing price of 2,150. Investors do not expect to see the company turning in profits soon. To expect a stock's price to move north when there are no signs that the company would turn profitable is to swim against the tide.

The company is the biggest in the digital payment space; it aggressively sells loans, manages a payment gateway for a unified payment interface and distributes insurance and other financial products like mutual funds. Its IPO investors hope that One97 Communications will crack each of these segments, given its current claims to have 333 million subscribers. Their hope is riding on the projection that the company would be the financial solutions provider to these subscribers from UPI payments to investments. Analyst predictions for each of these segments range from 15-20% growth over the next five years.

Sharma appears to be bullish on the company's loans segment; there's traction in the small-ticket loans of less than 25,000 from creditworthy customers who otherwise do not manage to get loans from banks or non-banking financial companies. According to one set of data quoting RedSeer Report in the draft red herring prospectus of Mobikwik, a Paytm rival, a boom in the online 'buy now pay later' loans is just around the corner. The segment is projected to grow to $45-50 billion by 2025-26 from $3-3.5 billion in 2020-21. While these are prospects for business growth, they still do not guarantee profits.

Investor bets on One97 Communications' prospects remind of those early investors who bet on Facebook, now called Meta. Facebook had listed in 2012 at a price close to $38; its shares tumbled to less than $19 soon after that. The share price languished around those levels for nearly two years before clarity emerged about how Facebook's revenue and profits would move going forward.

India, too, has seen popular consumer technology companies finding their way to the stock market only to disappoint. Zomato and PB Fintech, the insurance aggregator Policybazaar also witnessed rocky stock market debuts, and their share prices have not moved spectacularly subsequently. Both the companies remain loss-making, just like One97 Communications. Zomato's market cap is close to $14.5 billion, and PB Fintech is nearly $6 billion.

On the other hand, there have been a string of spectacular listings over the past year: Nykaa, Latent View Analytics, Sigachi Industries and Happiest Minds Technologies. The reason is simple. These companies may be small but are not making losses.

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