The much-awaited IPO of Paytm which was closed on November 10, 2021, was 1.89 times oversubscribed. While foreign institutional investors flooded the issue with offers, domestic mutual funds and wealthy individuals mostly decided to stay away and opted the stategy of ‘wait-and-watch’. It is expected that the company will debut on the stock exchange on November 18, 2021.
The IPO received bids for 9.13 crore equity shares, compared to an offer of 4.83 crore shares. Retail investors subscribed 1.66 times to the reserve portion, while non-institutional investors subscribed 24 percent. Qualified institutional buyers (QIBs) submitted bids for 2.79 times the amount.
It is foreign institutional investors, banks, and financial institutions, as well as mutual funds, insurance companies, mutual fund managers, and other financial institutions which fall under QIB.
As many fund managers and investment advisors were vocal about the concerns they have related to Paytm stock price as well as loss-making startup IPOs, the effect of the same was quite visible on Paytm IPO.
Foreign investors accounted for around 99% of the IPO’s institutional demand. However, large domestic investors like mutual funds and insurance companies barely participated in this open offer. Only a few domestic institutions participated in the previous investment round. According to media reports, Canada Pension Plan Investment Board (CPPIB) has increased its subscription. It had participated in the anchor round as well. It had also participated in the IPO’s anchor rounds last week. Paytm raised Rs 8.235 crore from anchor investors and the round was oversubscribed ten times, albeit the same enthusiasm was missing in Paytm IPO.
Surprisingly domestic mutual funds bid only for 348,828 shares out of 48.4 million offered to investors. HNIs bid only for 31,53,438 shares out of the 1,31.97.115 available. This means that only 24% of the portion reserved for non-institutional investors was subscribed. By far it was the lowest participation by mutual funds or HNIs in an IPO over recent months.
To put things in perspective, the recently launched immensely successful IPO of Zomato witnessed strong participation by domestic mutual funds, which applied for 1.9 billion shares of Zomato. However, institutional investors were offered approximately 389m shares. Nykaa, another startup unicorn that went for an IPO a week back, also received an overwhelming response from domestic mutual funds.
Many experts feel that the response to Paytm IPO is far below expectations. They argue that Zomato IPO was oversubscribed by 38 times while Nykaa also received similar response and its IPO was oversubscribed by 82 times. This resulted in nearly 79% – 89% surge in share price on the listing day itself. In case of Pytm, the IPO was oversubscribed nearly 2 times only.
Considering all the above factors how much IPO gain would be is a question that most of investors are now worried about. One97’s shares will likely be priced at the highest end of the range between Rs 2,080 and Rs 2,150. This would set the company valuation to the tune of $20 billion.
“We are overwhelmed with the outstanding response to the Paytm IPO shown by institutional investors, financial giants, mutual funds and of course, retail investors. At Paytm, our ethos has always been to offer technology and financial services that can give power to citizens to improve their lives, help merchants grow their businesses, and impact our communities in positive ways. We hope to continue to strive and drive financial inclusion for the underserved and unserved population of the country,” the company said in a statement.
But there seems to be not many takers of the picture depicted by the above statement. Many are quite optimistic about the future growth of the fintech unicron, but others are also quite skeptical about the returns and the valuation of company which is incurring losses for the last eight years.
“The company seeks a valuation of $20 Billion at a 49-fold price to FY21 sales. The valuation seems high considering the company’s current operating matrix. According to Yesha Shah (Research head at Samco Securities), the valuation seems high considering long-term growth prospects, current financial parameters and rich valuations. Only risk-tolerant investors who have a medium- to the long-term horizon are eligible to subscribe to this offer,” says Yesha Shah (Research head at Samco Securities) while talking to TOI.
Shah is not the only one who is vocal about his concerns related to Paytm valuation. Aswath Damodaran, Professor of Finance, Stern School of Business, New York University, expressed his concern about valuation set by the company. On his blog, he worte that almost all of Paytm’s value comes from future expectations and that there is considerable uncertainty on each dimension. It should not be surprising that the range of estimated value is enormous, with a 3% chance the firm’s equity will be worth less than Rs 2 trillion (approx $27 Billion) at the 90th percentile.
There are other investment advisors and fund managers who are not quite optimistic about Paytm IPO. Yesterday we wrote why Abhishek Basumallick, investment advisor with over 20 years of experience, believe that India is in a massive startup IPO bubble.
Whatever may be the case, the Paytm IPO is over and investors have already placed their bets. All eyes are set on the listing gains now. The bar, however, is raised by Zomato and Nykaa by giving nearly 90% gain on the very first day. Will Paytm be able to meet – if can’t beat – the expectations or will end up disappointing investors? We need to wait for one more week to get that answer!