India's Paytm tumbles another 14% after first-day IPO flop

[BANGALORE] Shares of India's pioneering digital-payments startup Paytm plummeted for a second day after its US$2.5 billion initial public offering, marking one of the worst debuts ever by a major technology company.

The stock fell about 14 per cent on Monday after a 27 per cent plunge in its debut Thursday, cutting its market value to about US$12 billion. The drop has hit individual investors and global institutions such as BlackRock Inc and the Canada Pension Plan Investment Board that had scooped up shares.

Paytm's parent company, One 97 Communications Ltd, raised a record IPO sum for India, but its disastrous trading debut sparked criticism that the company and its investment bankers had pushed too hard in the offering.

Founder and chief executive officer Vijay Shekhar Sharma had persistently made clear that he wanted Paytm to surpass the long-standing IPO record set by Coal India Ltd in 2010. Indian markets were shut Friday for a holiday.

"Investors should wait a bit for the stock to settle down," said Mohit Nigam, a fund manager with Hem Securities Ltd. "There is too much volatility and pessimism in the stock."

Over the weekend, Paytm released financial details for the month of October, which includes the critical period ahead of the Diwali holiday. Gross merchandise value rose 131 per cent to 832 billion rupees (S$15.2 billion) for the month, the company said.

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Loan disbursals, which analysts see as key to Paytm turning profitable, increased more than 400 per cent to 6.27 billion rupees. The stumble by India's largest digital-payments provider may chill India's stock-market boom, which had ranked among the world's most frenzied. The IPO had been touted by some as a symbol of the country's growing appeal as a destination for global capital, particularly for investors looking for alternatives to China.

Paytm's IPO was managed by leading banks, including Morgan Stanley, Goldman Sachs Group Inc, JPMorgan Chase & Co, ICICI Securities Ltd and Axis Capital Holdings Ltd. They all either declined to comment or did not respond to requests for comment.

Critics have questioned Paytm's prospects in recent months. While sales at its core payments and financial-services arm rose 11 per cent in the year ended in March, overall revenue dropped 10 per cent amid intensifying competition, the company reported in July. Even before trading began, Macquarie Capital Securities (India) slapped the company with an initial "underperform" rating and a price target of 1,200 rupees, 44 per cent lower than the IPO price.

"Considering Paytm's heavily cash-burning business model, no clear path to profitability, large regulatory risks to the business and questionable corporate governance, we believe the company is overvalued at the upper end of price band of 2,150 rupees," analysts Suresh Ganapathy and Param Subramanian wrote in the note.

Others see promise in the Paytm model if it builds on its expanding customer base. Deven Choksey, a strategist at KRChoksey Investment Managers, said: "Paytm is a strong company, technology-wise, but needs to expand into finance side of the fintech business. Just focusing on technology will not work."

CEO Sharma has defended the company's prospects. He rallied employees during a four-hour town hall meeting and encouraged them to look past the first-day drop, according to employees who participated. He invoked Elon Musk and Tesla Inc, reminding employees that the electric vehicle maker's stock used to be the among the most-shorted in the world. But the company overcame years of struggle to become one of the most recognised brands globally, he said.

The slump is "no indicator of the value of our company," the 43-year-old said in an interview with Bloomberg News on Thursday. "We are in it for the long haul. We'll put our heads down and execute."

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