Paytm falls 27% after historic IPO for India

But Paytm, which went public in Mumbai on Thursday, spoiled the party: its shares opened below 2,150 rupees ($ 28.60) affair price, before closing 27% at 1564 rupees ($ 21).

The failure reflects fears about Paytm’s business. The company, now worth nearly $ 14 billion, lost hundreds of millions of dollars last year and appears far from ready to turn a profit. It also faces growing competition from some of the world’s largest tech firms.

The digital payments company raised 183 billion rupees ($ 2.5 billion) in its initial public offering. Is he larger ever in the country when measured in local currency, beating Coal India in 2010. That IPO was worth 155 billion rupees ($ 3.48 billion), according to Refinitiv data.

“The outcome of the IPO was not in doubt,” Madhur Deora, the president and group Paytm CFO, told CNN Business In the past week. The former investment banker has been with the company for five years.

But the amount of attention it attracted took him by surprise.

Backed by investors such as Warren Buffett, Masayoshi Son and Alibaba (SLIME)Paytm is one of the best funded startups in India. its The public debut has been watched closely by both professional and amateur investors.

India has been producing Billion-dollar startups for years, but the rush for those unicorns to go public began just a few months ago.

“Many supporters and friends message [me], saying, ‘Oh, I’m going to say a prayer in golden temple for the success of Paytm, “said Deora, referring to the central place of worship of the Sikh religion.
They were not alone. Paytm founder Vijay Shekhar Sharma went to “seek God’s blessing“in the temple of Tirupati, one of the most famous places of worship, upon November 8th – the Paytm day launched its IPO.
That day also marked five years since Prime Minister Narendra Modi banned two of the country’s largest currency notes. the move it was hugely disruptive by the economy, but it helped Paytm grow at an explosive rate: the company signed 10 million new users in a month. It made us “a folk name in this country” Shekhar told CNN Business in 2019.
Thanks to the momentum provided by the cash ban, Paytm is now the largest payments platform in one of the world’s fastest growing economies. It has 337 million registered consumers and 22 million merchants, according to its IPO presentation.

At Thursday’s listing ceremony, an emotional Sharma called the company’s purpose of bringing millions of Indians into the mainstream economy as “pious.”

Mixed signals

Foreign investors have been enthusiastic. The company raised $ 1.1 billion from BlackRock and the Canada Pension Plan Investment Board just before the IPO was opened, according to an exchange presentation. And on launch day earlier this month, Softbank (SFTBF) founder and current Paytm investor, son declared that, “for us, your IPO should be a great event.”

However, the response in India it has been different.

While Paytm’s The IPO was eventually fully underwritten, much of the local media coverage has been tepid, noting that the company took longer to find buyers for its shares than two other Indian startups in recent months, food delivery company Zomato and e-commerce company Nykaa.
Zomato Shares Soar Off Hot Start For First Indian Unicorn To Go Public

“I think the real story here is that someone aimed to do something that hadn’t been tried before and many thought it couldn’t be done in the Indian capital markets,” Deora said, referring to the challenge of launching such a large IPO. before the company has made a profit.

Paytm’s losses have analysts concerned about whether the company can justify its valuation. The company, based in the New Delhi suburb of Noida, posted a loss of 17 billion rupees ($ 230 million) last year with revenue of 31.86 billion rupees ($ 430 million). Profits are not on the horizon any time soon.

Madhur Deora, president of SoftBank-backed Indian payments firm Paytm, poses for a photo inside his home in Mumbai, India, on September 22, 2020.

“We expect to continue incurring net losses for the foreseeable future and we may not achieve profitability in the future,” he said in his IPO filings, adding that the company will continue to spend heavily on contracting, marketing and infrastructure construction.

“Two years ago, we were in this super high investment phase where we were creating a lot of traction from consumers and merchants on the platform,” said Deora. “We have found that it is easier, much easier, than two years ago to acquire and retain customers, so we are spending much less.”

That said, he added, “our goal is to reach 500 million Indians … So we would continue to spend on marketing. “

As the cost of data and the internet in India falls, its population of 1.3 billion is getting online at a rapid pace. Paytm expects the number of smartphone users in India to reach 800 million in the next five years, which will give a significant boost to its business.

Next phase of growth

Skeptics have pointed to increasing competition, mostly because Facebook (full board) and Google (GOOGL) they joined the fray by launching their own mobile payment systems that make use of the Unified Payment Interface (UPI), a technology backed by the Indian government.

Deora said he is not concerned, as UPI-based payments represent only a “part” of Paytm’s business, which has now expanded into commerce, lending and other sectors.

While financial services are a relatively new part of the the company’s business, Deora said he is excited about the opportunity to be “democratic” with loans and reach everyone from the self-employed to those who receive a daily salary. worker. The company plans to strengthen this business with the money it has raised.

“The vast majority of Indians don’t have access to formal credit … They just don’t have a credit history,” he said. “So there is a lot of what we call [India’s] neglected or neglected. ”

“There is a huge market to provide access to credit,” he added. Paytm has associated with banks, including the nation’s largest private lender, HDFC, to provide services ranging from personal loans to buy-now-pay-later options.

“Pay Later really suits the needs of the young millennials in the country, because many of them just find that the process of getting credit elsewhere is not right for them,” Deora said.

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