Paytm share price touches lifetime lows amidst market headwinds

Paytm has never had it easy. The Paytm IPO came a little over a year ago at a price of Rs. 2,150. As of mid-day on Wednesday 23rd November 2022, the Paytm share is trading at a price of Rs. 456.75. In short, the stock after falling 11% on Tuesday, is down another 4.2% on Wednesday. Since its IPO, the stock is now down a full 78.8% and that is a lot of value destruction that has happened. The Paytm stock was already under selling pressure in the last few days as its one-year lock-in period for pre-IPO investors had just ended and most of the early investors were rushing for the exits and thinking with their feet.

One of the broking houses that has been a perpetual bear on Paytm is Macquarie and they have got it stunningly right on each occasion. For instance, they had given consistently lower targets from the day of listing. The latest round of selling in the Paytm counter got exacerbated by the recent report from Macquarie on Paytm. The report has highlighted that Paytm could face its toughest competition due to the arrival of Jio Financial Services (part of the Mukesh Ambani group). According to Macquarie, Jio Financial Services (JFS) also plans to extensively focus on consumer and merchant lending, the mainstay of Paytm's business.

The value loss has been tremendous. Like Amazon became the first company to lose $ 1 trillion in market cap from the peak, Paytm became the first Indian company to lose Rs. 1 trillion in market cap from the IPO. That is a lot of value destruction and nearly $12.5 billion of investor wealth down the drain. As of the close of 22nd November, Paytm was valued at Rs. 30,971 crore and would have fallen further on Wednesday. This looks like a pale apparition of the company compared to the market cap of Rs. 1.39 trillion at the time of the IPO. Ironically, the IPO itself was at a rather discount to the VC valuations of Paytm.

Several large funds including Softbank of Japan have sold heavily on the Paytm counter, being unhappy with the way the digital story has unravelled in India. Companies like Flipkart and Byju’s which did not list their companies on the Indian bourses must be thanking their stars that they do not have to go through the same nightmares that Paytm, Zomato, Delhivery, Policybazaar and Nykaa are going through. But the most interesting aspect now is the perception that Jio Financial could make a huge dent on Paytm. Paytm has managed to grow its lending and broking franchise quite impressively but now it could face stiff competition from one of the wealthiest and most cash rich groups in India.

Incidentally, the Macquarie report had not only pointed to the risk that Paytm faced from the likes of Jio Financial but also the impact it could have on other players like Bajaj Finance, which also operates in the same space. As per reports, Jio Financial Services is slated to be demerged from Reliance Industries and listed as a stand alone entity. Incidentally, Jio Financial would be the fifth largest financial player in terms of net worth after HDFC Bank, State Bank of India, ICICI Bank, and Axis Bank. That is going to be quite a handful for Paytm to compete with. Needless to say, JFS will come with almost unlimited ammunition to scale up its lending, insurance, broking and other verticals at an extremely rapid pace.

In its quarterly earnings announcement, Reliance had confirmed that it would demerge its financial services business and create a new listed entity. Apart from its core financial services, Jio Financial Services will also incubate financial services verticals such as insurance, payments, digital broking and wealth management with a strong digital bias. Jio Financial plans to launch a consumer and merchant lending platform which will largely leverage on the proprietary data analytics to complement credit bureau analytics. However, considering its industrial background, it may not be able to get a banking license.

JFS is also putting a formidable team in place, It has already appointed veteran banker K V Kamath as an independent director and non-executive chairman of Reliance Strategic Investments Ltd (RISL). This company is likely to be eventually renamed as Jio Financial Services. Kamath was the man behind the big push at ICICI Bank for 13 years between 1996 and 2009. His presence is likely to bring an innovative perspective to the business. Kamath will continue as independent director and non-executive chairman of JFS even after the scheme of demerger and name change is completed. Clearly, with such a formidable narrative in place, Paytm is not going to have it easy.