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New Delhi: India’s surprise two-day drop by Paytm after its initial public offering casts a shadow on the prospects for technology firms as the country prepares to go public in a breakout year.
According to Edelweiss Financial Services Ltd, at least some IPO prospects that were “on the periphery” and looking to profit from the flood of transactions may now rethink the timing and pricing of their issues. Payment services firm MobiKwik may delay its IPO. The Economic Times on Tuesday, citing sources, said it remained unrecognized for a few months due to lack of investor demand and a 30%-40% drop in valuations.
The Paytm debacle has spoiled the mood in India’s stock market with its benchmark S&P BSE Sensex index falling for four consecutive sessions, its longest loss in a month. Retail investors, who have bought an unprecedented amount of shares in Paytm’s parent One97 Communications Ltd, have seen 37% of their value wiped out in just two trading days. Further losses may occur if the stock falls to Rs 1,200 from Monday’s closing price of Rs 1,359.6 estimated by Macquarie Group Ltd.
Gopal Agarwal, Managing Director and Co-Head, Investment Banking, Edelweiss Financial Services, said, “This event will in a way encourage people to be cautious and not take the market lightly to bet blindly. “It is important that the company’s story and prospects are well understood by investors.”
India’s equity markets were in a tear this year, with a central bank slashing interest rates to a record low and millions of new individual investors seeking higher returns in riskier assets. The rally has encouraged at least half a dozen technology startups to seek public listing, including SoftBank Group Corp-backed Oyo Hotels & Homes and logistics provider Delhivery Pvt.
Firms from South Asian countries have raised around $15 billion through IPOs this year, which is already an annual record for total earnings. Yet critics are questioning the valuation of some of these IPOs, as they are still loss-making companies.
Ashutosh Sharma, vice president and director of research, Forrester Research Inc., said, “The pandemic has led to huge technology adoption in the country, which has cost many technology companies the valuations.” “Is this the start of a downtrend? I don’t know. But in the future, investors will look carefully at the risk and business future of tech companies.”
Paytm’s valuation is expensive at around 26 times the estimated price-to-sales for FY2023, especially when profitability remains elusive in the long run, say Suresh Ganapathy and Param Subramaniam of Macquarie Capital Securities (India) Pvt Ltd. Wrote in one of the few research reports covering the possibilities of Paytm. He added that most fintech players globally trade around 0.3-0.5 times the price-to-sales growth ratio.
Paytm’s large IPO size also restricted the demand, which could bode well for smaller potential IPOs. Food delivery app Zomato Ltd and beauty startup Nykaa – both smaller than Paytm offering – have seen their shares rise by over 80% since their IPO.
Edelweiss’s Agarwal suggests pricing share sales “leave something on the table for investors.”
“If an issue price can move 10% higher or lower, it would be advisable to go with the lower price, which provides huge upside in terms of trading,” he said. ,bloomberg
Disclosure, Paytm founder Vijay Shekhar Sharma is one of ThePrint’s eminent founder-investors. Please Click here For details on investors.
read also, Paytm shares fall further by 13% after historic IPO flop
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