Paytm listing of debacle throws stool on pipeline of India tech IPOs

Earlier in November, Paytm founder Vijay Shekhar Sharma traveled to Tirupati in hilly southern India. Its temple, known for promoting happiness and its own riches, was a suitable place for Sharma “to seek [the] blessing from God ”before launching India’s largest IPO to date.

The listing did not follow the script this week, with shares in fintech drops more than a third during its first two days as a public company, making it one of the worst debuts in the history of the Indian stock market. The shares in the group, which raised $ 2.5 billion and were valued at $ 20 billion, have bounced since then but are still about 17 percent below the issue price.

Debaclet has focused on Paytm, its shareholders SoftBank and Alibaba, and bookrunners on the IPO, including Goldman Sachs, Morgan Stanley and Citigroup. It has also raised concerns from investors and entrepreneurs, fearing that it could derail from a series of expected Indian IPOs that were intended to cement the county’s status as a leading destination for start-up technology companies after the US and China.

“The concern for all of us is that this is affecting the broader India’s technical sentiment? A bad deal and a case of bad judgment could upset the apple cart,” the head of India’s stock market markets told a West Bank. “Valuation will be very difficult.”

MobiKwik, an Indian fintech company, has delayed its IPO, which was originally scheduled for November, and said this week that it will “list at the right time”.

Ashneer Grover, co-founder of fintech BharatPe, said Paytm had “pampered” the Indian market. “Nothing can come of this market,” he told Moneycontrol.

Sandeep Murthy, a partner at investment group Lightbox in Mumbai, said there may be “some period of cooling” in fintech lists until the beginning of next year, but claimed it was “natural”.

Indian technology companies have raised $ 5 billion through IPOs this year, according to Dealogic, about 10 times last year’s total. The country has emerged as a leading beneficiary of a sustained regulatory crackdown on technology companies in China that led international investors to look elsewhere.

The food delivery company Zomato, which was listed on the stock exchange in July, overcame skepticism about its cash burn and valuation, with its share doubling from the IPO price. The shares in the insurance aggregator PolicyBazaar and the beauty platform Nykaa have also increased since they debuted earlier this month.

But Paytm’s much larger listing, which accounts for about half of the total amount raised through Indian technical IPOs this year, risks overshadowing others.

Founded 11 years ago, Paytm has grown to become one of India’s most renowned technology brands thanks to its mobile wallets. The charismatic Sharma attracted leading international investors including Alibaba founder Jack Ma, Warren Buffett and SoftBank CEO Masayoshi Son.

Bar chart of performance from offer price (%) showing Spotlight on India's new technical lists

But the introduction of the Indian government’s UPI digital payment infrastructure undermined its core business, with Google and Walmart-owned PhonePe now market leaders. Paytm has diversified into everything from investments to insurance, but faces better established competitors in each sector and lacks clear areas of strength, say analysts.

Its core business makes no money and a move to reduce marketing costs showed that they were trying to show better results before the IPO, said Prashant Gokhale, Hong Kong-based co-founder of research group Aletheia Capital. “There was a lot of hype with SoftBank and Warren Buffett there,” he said.

A person with direct knowledge of Paytm’s discussions about listing pricing said that there was too much liquidity-chasing business, especially with the crackdown in China that made India more attractive as a destination.

“Investors are desperate for places to go, which pushed up prices without improving the foundation,” the person said. “A lot of money to chase the deal that did not get it is probably happy now.”

Chart showing growth in investment in India's technology sector surpassing China

Paytm’s large Chinese ownership also poses a risk to regulation and reputation, after India imposed strict restrictions on Chinese investment following military tensions last year. While Alibaba and its financial arm Ant sold shares in the IPO, together they still own almost a third of the company.

The debut has made comparisons with the disastrous listing of Reliance Power in 2008, which raised a record $ 1.5 billion before collapsing 17 percent on the first trading day. Its shares have never recovered and this week 95 percent were traded below the issue price.

Madhur Deora, Paytm’s chief financial officer, told the Financial Times that the company would “focus on our performance… How it translates into valuation and stock price and so on is of course up to investors to decide.”

Some argue that Paytm’s painful debut could ultimately be a blessing if it gets investors to look at other richly valued and highly hyped Indian technology companies with some skepticism.

“What at least was encouraging to me [was] to see that the market was not in a state of irrational excess, ”said Lightbox’s Murthy about the company’s debut. “If a market blindly valued things, it would [be] a greater challenge in the future. “

An analysis by Goldman Sachs found that the Indian companies that are potential IPO candidates had an average price / sales ratio, a measure used to value companies, of 21 over the past three years, compared to three for groups in India’s benchmark Nifty index.

Among the most prominent upcoming lists is the budget hotel group Oyo, which submitted a draft prospectus to raise $ 1.1 billion last month. CEO Ritesh Agarwal, who was supported by SoftBank, tried to make Oyo the world’s largest hotel company just to sharply reduce its ambition in the face of a liquidity crisis.

Fellow SoftBank portfolio company Ola, a carpooling group, also plans to submit a prospectus in the coming months. The company is now focused on manufacturing cheap electric scooters, but the delivery of the new bikes has been delayed several times.

“The valuation is moving forward,” said Mohit Nigam, fund manager at Hem Securities in Mumbai. “We as investors need to be careful about the upcoming IPOs because these guys, no matter how good their business is… You can not overlook profits and cash flows.”

Rajan Anandan, head of Sequoia Capital India, argued that it was too early to assess Paytm’s long-term outlook, but acknowledged that technical values ​​in India and abroad were in danger of declining.

“At some point, there will be a correction in public and private markets” across the technology sector, he told an FT-Indian Express event this week. “When it happens, it will affect everyone.”

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