Paytm gets big bear hug again. What are brokerages saying?

Paytm chief Vijay Shekhar Sharma might have envisioned a dream debut at the bourses, as his digital payments and financial services company listed on India’s stock exchanges on Friday. 

But what followed was a horrific anti-climax, at least from Sharma’s and Paytm’s standpoint. The stock plunged 27% on Friday from its issue price of Rs 2,150 per share, and closed the first day of trade at Rs 1,564 apiece.

In the wake, it wiped Rs 35,000 crore off investor wealth in the space of a few hours. 

Paytm's big bust?

Paytm had mopped up Rs 18,300 crore in India’s biggest initial public offering (IPO) till date. But the bears, it appears, are not yet done hammering the stock down. 

On Monday, its second day of trading, the bludgeoned scrip fell another 18.7% in intra-day trading to Rs 1,271 apiece before paring the losses to climb above Rs 1,300.

What went so horribly wrong?

If news reports and the general commentary around the listing are anything to go by, Paytm’s was a classic case of valuation over-reach. Essentially, Sharma and Paytm wanted a blockbuster listing that would surpass that of the state-owned Coal India Ltd, which was India’s single-biggest IPO earlier. 

But while Paytm and its bankers, the likes of Morgan Stanley and Goldman Sachs, talked up the IPO and sought to build a sense of euphoria around it, brokerages and analysts were not convinced about a loss-making company, which is unlikely to turn the corner for several more years, commanding such steep premiums. 

Macquarie

International brokerage house Macquarie, for instance, gave an underperform rating, and said that Paytm’s parent One97 was a cash guzzler, and lacked focus. Macquarie gave its investors a target price of Rs 1,200 a share. 

“Dabbling in multiple business lines inhibits Paytm from being a category leader in any business except wallets, which are becoming inconsequential with the meteoric rise in UPI payments. Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view,” Macquarie said in a note.

“Therefore, [we] question its ability to achieve scale with profitability. We value the stock using a 0.5 times PSG multiple on December 2023 annualised sales to arrive at our target price of Rs 1,200, implying 44% downside. The key game changer could be an ability to monetise UPI, which could completely swing the investment case. A 10bp fee on UPI provides a fair value of Rs 2,900-3,300 based on PSG/DCF,” it added.

Prabhudas Lilladher

Macquarie isn’t the only brokerage to talk the newly listed stock down. “Paytm share prices will remain subdued in the short to medium term as IPO investors will try to exit the stock at every possible rise, and new investors won't touch it till sentiment changes,” said Piyush Nagda, head of investment product at Prabhudas Lilladher.

“It's difficult to give a fair value for any loss-making company, but at around Rs 1,250-1,300 levels, Paytm could witness some buying interest from institutions and family offices in their long-only portfolios as an allocation towards digital and fintech theme in a fast-growing market like India.”

Ansid Capital

“I would not even be comfortable at less than 50% discount to the current price because I do not see a path to Paytm's market domination and the kind of dreams that are being propelled,” Anurag Singh, managing partner at Ansid Capital, told ET Now. “History tells us that at 45 times sales, it is very hard to make money from this point."

Corporate governance issues?

A report in The Economic Times said that some analysts had raised questions on a host of resignations at Paytm, leading up to the IPO. 

“Paytm does not have a single mature segment (with leadership having a stable revenue model),” the report cited a leading wealth management firm, as saying in a note to clients.

“Vijay Shekhar Sharma has seeded too many business segments chasing the chimera of the walled garden without building a capable team to scale up anyone into a stable revenue model," the report added.