Paytm's debacle casts doubt over IPOs for Indian startups

Mumbai

A STUNNING 2-day plunge by India's Paytm after its initial public offering (IPO) casts a shadow over the prospects for technology firms preparing to go public in what was supposed to be the country's breakout year.

At least some of the IPO prospects that have been "on the periphery" and looking to benefit from the flood of transactions may now rethink the timing and pricing of their issues, according to Edelweiss Financial Services.

Payment services firm MobiKwik may delay its IPO by a few months due to lack of demand from investors and a 30 per cent to 40 per cent drop in valuation, the Economic Times reported Tuesday (Nov 23) citing sources it didn't identify.

The Paytm debacle has dimmed the mood in India's stock market with its benchmark S&P BSE Sensex Index poised to drop 5 sessions in a row, which would be the longest losing streak since March.

While Paytm's shares rebounded by as much as 6.5 per cent in early Tuesday trading, the broader gauge continued to fall. Retail investors, who bought an unprecedented amount of shares in Paytm's parent One 97 Communications, saw more than 30 per cent of their value wiped out since the payment firm's listing last Thursday.

Further losses may be in store if the stock slumps from its Monday closing price of 1,359.6 rupees to the 1,200 rupees predicted by Macquarie Group.

"The event in a way will nudge people to be cautious and not take the market for granted by blindly placing bets," said Gopal Agrawal, managing director and co-head of investment banking at Edelweiss Financial Services. "It is important that a company's story and prospects are well understood by investors."

India's equity markets had been on a tear this year, buoyed by a central bank that slashed 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 to public listings, including SoftBank Group-backed Oyo Hotels & Homes and logistics provider Delhivery.

Firms in the nation have raised about US$15 billion through IPOs this year, already an annual record by total proceeds. Yet critics have been questioning valuations on some of these IPOs, given they are still loss-making companies.

Paytm's valuation, at about 26 times estimated price-to-sales for the financial year 2023, is expensive especially when profitability remains elusive for a long time, Suresh Ganapathy and Param Subramanian of Macquarie Capital Securities (India) wrote in one of the few research reports covering Paytm's prospects. Most fintech players globally trade around 0.3-0.5 times price-to-sales growth ratio, they said. BLOOMBERG