India’s Paytm falls another 14% after first day listing

(Bloomberg) – Shares in India’s groundbreaking start-up of digital payments, Paytm, plunged for a second day after the first $ 2.5 billion IPO, marking one of the worst debuts ever by a major technology company.

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The stock fell about 14% on Monday after a 27% drop in its debut on Thursday, cutting market value to around $ 12 billion. The fall has affected individual investors and global institutions such as BlackRock Inc. and the Canada Pension Plan Investment Board, which had acquired shares.

Paytm̵[ads1]7;s parent company, One 97 Communications Ltd., raised a record high IPO for India, but its disastrous trading debut sparked criticism that the company and investment bankers had pushed too hard in the offer. Founder and CEO Vijay Shekhar Sharma had persistently made it clear that he wanted Paytm to surpass the long-standing listing record set by Coal India Ltd. in 2010. Indian markets were closed on Friday for a holiday.

“Investors should wait a bit for the stock to settle,” said Mohit Nigam, a fund manager at 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 include the critical period ahead of the Diwali holiday. Gross commodity value rose 131% to 832 billion rupees ($ 11.2 billion) for the month, the company said. Loan payments, which analysts see as the key to Paytm becoming profitable, increased by more than 400% to 6.27 billion rupees.

The stumbling block from India’s largest digital payments provider could cool India’s stock market boom, which was ranked among the world’s craziest. The listing had been designated by some as a symbol of the country’s growing appeal as a destination for global capital, especially 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. Everyone either refused to comment or did not respond to requests for comment.

Critics have questioned Paytm’s prospects in recent months. While sales in the core payment and financial services department increased by 11% in the year ended March, total revenue fell by 10% due to increasing competition, the company reported in July.

Even before trading began, Macquarie Capital Securities (India) Pvt. Ltd. beat the company with an initial “underperform” rating and a price target of 1200 rupees, 44% lower than the listing price.

“Given Paytm’s powerful money-burning business model, no clear path to profitability, major regulatory risks for business and questionable corporate governance, we believe the company is overvalued at the upper end of the 2150 rupee price band,” analysts Suresh Ganapathy and Param wrote in the note. .

Others look promising in the Paytm model if it builds on its expanding customer base.

“Paytm is a strong technology company, but they need to expand into the financial side of the fintech business,” said Deven Choksey, a strategist at KRChoksey Investment Managers Pvt. “Just focusing on technology will not work.”

Sharma’s CEO has defended the company’s prospects. He gathered employees during a four-hour long town hall and encouraged them to look past the first day release, according to employees who participated.

Sharma sued Elon Musk and Tesla Inc., reminding employees that the electric carmaker’s shares used to be among the most short-circuited in the world. But the company overcame many years of struggle to become one of the most recognized brands globally, he said.

The decline is “no indicator of the value of our company,” the 43-year-old said in an interview with Bloomberg News on Thursday. “We’re in it for the long term. We’ll lay our heads down and execute.”

(Updates with market assessment in the second paragraph)

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