The top executives of Ola and Paytm must be disappointed.
As the waves of the pandemic slowly recede from the shores of pandemic-hit businesses, they reveal the debris left behind. While some have managed to get by, others have been left more scarred than others.
The same is true for two prominent Indian startup unicorns, mobile payments major Paytm and ride-hailing platform Ola. As reported by sources citing regulatory filings, the markdown by the two US-based mutual funds, T Rowe Price and Vanguard, for two among the most valuable internet companies of India, has been sounded after the pandemic upset business in the first half of the year.
For Paytm, Investment Management Company T Rowe Price had invested around $150 million in December 2019. However, it has now brought down the value of its shares in the company by a margin of 26%, as of June 2020. The shares were acquired for $254 apiece but have now tumbled down to being valued at $188 by multiple funds managed by T Rowe Price. Initially, Paytm was valued at close to $16 billion, when it last raised funding in December 2019.
Coming to ride-hailing startup Ola, its business has certainly taken a bigger hit due to the pandemic. As of August 31, Ola saw the valuation of its shares sharply declining by as much as 50% by Vanguard. Ola’s shares have come down to being valued at $162.5 apiece as opposed to the standing valuation of $311 in February. Ola was valued well around $6.5 billion when it last raised capital from carmaker Hyundai in 2019.
It is worth noting that the markdowns have come from the US-based mutual funds as they both hold around a 1% stake in both the companies.
Looking back, the markdown at the hands of mutual funds is not unprecedented. In 2016, e-tail behemoth Flipkart’s valuation was marked down to $5.6 billion by Morgan Stanley and Fidelity. Putting those woes aside, it went on to be acquired by American retail giant Walmart for $22 billion. Ola is also no stranger to these proceedings. Having previously faced a 40% markdown from Vanguard in 2017, it recovered its valuation in 2018.
According to veteran investors and analysts, for Paytm, increasing competition in the fintech sector has been accorded as one major reason behind the devaluation. Contrast the situation two years ago, when Paytm held an upper hand in mobile payments. Whereas now, other players like PhonePe, Google Pay, Amazon Pay, also counting the recent tie-up between Reliance-WhatsApp, have all entered the fray. While digital payments will be on the upswing as the people stay and spend from indoors, the border disputes between India and China have hit the Noida-based company hard. Especially because Paytm relies heavily upon China’s e-commerce giant Alibaba Group and its fintech affiliate Ant Financial, who together constitute being their largest shareholder, with a reported 40% stake in the company.
In the case of Ola, the slowdown all over in the mobility business has wreaked havoc. Its nemesis Uber also claimed in Aug that business was down by 50%-85% in several cities. As the nation continues to stagger back to normalcy, Ola can garner hope as the business in various pockets of cities crawls back to pre-Covid levels.
In parallel to all of it, the SoftBank-backed company looks to increase its focus on electric vehicles’ manufacturing. The acquisition of Netherland based Etergo paints quite a clear picture of the future roadmap of Ola.
Several questions linger as to whether the setback is temporary, or may have a greater, far-reaching impact in the present scenario. Even as Ola looks to venture into EV, and digital payments continue to be the man of the hour, it will be intriguing to see how our backyard unicorns recover from this particular stumble.
The valuation of top Indian startup unicorns without markdown ($ billion):
- Paytm: 16
- Byju’s: 11.5
- Oyo: 10
- Ola: 6
- Swiggy: 3.65
- Zomato: 3.5
- Zerodha: 3
- Udaan: 2.8
- BigBasket: 2.5
- Billdesk: 1.8
- Delhivery: 1.6
- Unacademy: 1.45
Stay tuned for more interesting updates.