What went wrong with the Paytm IPO
Paytm’s IPO disappointment is testament to the fact that the law of averages finally catches up with you. Without a doubt, Paytm has been one of the success stories of the previous decade that was marked by an unprecedented rate of digitisation of people’s lives. Paytm was at the right place at the right time to gain from this, scale up and diversify its business. Venture capitalists and private equity funds saw potential in the group’s future, they came in droves—helped by easy liquidity available globally then—to fund the company and took its valuations to newer heights.
While there were always questions raised on valuations these start-ups command, they rarely come under scrutiny as long as only VC and PE funds money is involved. But once you offer equities to the public, you open yourself up to all kinds of scrutiny—regulatory as well as investor. Every number and every performance metric is analysed threadbare. All possible future scenarios—competition, outlook and cash flow—are looked into. The more noise you make, the more you come under the radar. The same happened to Paytm. Analysts and investors do not see eye to eye with Paytm on the valuation of its IPO. The issue price of Rs 2,150 turned out to be a big spoiler for the fintech company that expected a mega subscription. At a time when ‘rightly’ priced IPO issues were getting subscribed 200-300 times followed by listings at 50-100% premium, Paytm IPO failed on both counts. While it got a tepid 1.8 times subscription, the share got pummelled on its debut on the exchanges as it closed day one with an around 27% fall.
Even though investors have realigned their expectations from new businesses and do not expect immediate profitability, they sure look for business models that promise positive cash flow in future. It looks like investors do not see much of this from Paytm, at least in the medium term. And as its share price has already fallen to Rs 1,560 from the issue price, it will be interesting to see in the next couple of sessions what ‘fair’ value markets decide for Paytm.