As Paytm lock-in period ends, can the stock hold up?

One97 Communications share price (which owns the brand Paytm) has never had a very happy period in the stock markets in its last 1 year of listing. Against the IPO price of Rs 2,150 per share, the stock plummeted on listing and just went downhill after that. It is still a little more than 70% down below the issue price, causing huge losses to the IPO investors. Investors who had big hopes on the digital story, were in for a deep disappointment. At Rs18,300 core, Paytm had been the largest IPO in Indian history, till the record was broken by LIC. Ironically, the 2 stocks were among the bottom performers in the IPO market.

But, now the worry is at a different level. This week, the 1 year lock in period ends. Normally, large investors who get private placements pre-IPO are locked in for a year to ensure that they give confidence to the retail investors. Now that period is coming to an end. This will open up close to 86% of Paytm's shares for free trading. This includes shares held by marquee investors like Berkshire Hathaway, SoftBank, Elevation Capital and Ant Financial. Some investors argue that nobody would sell when the price if 70% below the IPO price, but many of these are early investors and their cost would be much lower than CMP.

The IPO lock in period is normally set by the underwriter to prevent the early investors and insiders from liquidating their pre-IPO stocks for a certain time after it is listed on the stock exchanges. The extant SEBI regulations mandate a one-year lock-in period for pre-IPO investors, post listing of the shares. However, Paytm is today one of the worst performing IPOs of the year, having destroyed wealth to the tune of 72%. The market cap of Paytm itself is down from $16 billion to $5 billion, so a lot of investor money is already down the drain. That is why, when the lock in period ends this week, it would be interesting to watch.

On Wednesday, the share price of Paytm fell 4% to close very near to Rs600 per share. Its 52-week low is Rs510 and 52-week high is Rs1,955, so either ways, there is nobody who has seen the price of Rs2,150 except the unfortunate IPO investors. The stock currently trades more than 70% below its IPO issue price of Rs2,150 per share. Even the numbers are not too encouraging. For Q2FY23, its net loss widened to Rs571 crore against Rs472 crore in the same period last year. Vijay Sekhar Sharma, the brain behind Paytm, has been promising to turn around to profits in a few years, but now nobody is really believing these projections.

The good thing is that Paytm is still building on top line. For the quarter ended September 2022, Paytm reported revenue from operations up 76% at Rs 1,914 crore compared to just Rs1,086 crore in the same period last year. Even if you look at revenues on a sequential basis, it had climbed 14% from Rs1,679 crore in the June 2022 quarter. The growth in revenue was triggered by factors like accelerated device deployments, momentum in commerce as well as perceptible growth in Paytm’s advertising revenues. The impact of government policies and regulations have been fairly limited on Paytm.

Even as analysts are gradually turning bullish and brokerages like ICICI Securities have given lofty targets for Paytm, most of the global investors are likely to give more time to Paytm before thinking with their feet. There would be some selling pressure but it is unlikely that any of these big investors would sell en masse at these price levels. Most of them appreciate that the worst of the risks are already factored into the stock price. If ever there is a digital play on India is it through Paytm. Nykaa suffered when the lock-in was completed because the stock had not give negative returns. At this juncture, investors may bet on the Paytm ecosystem. That would be a much wiser thing to do than to think with their feet.