When Paytm announced its plan to go public, almost everyone was confident about the success of Paytm IPO, which also happened to be the biggest one in the history of India. However, things didn’t go as per plan and the lukewarm response received from retail investors and MFs resulted in the Paytm IPO debacle. In a face-saving effort, the company decided to list itself at a discounted price of Rs 1,950, down from the IPO price of Rs 2,150.
However, within a few hours of listing it became clear that the management of Paytm misjudged the market sentiments as the opening day closed with a record decline in the stock price of Paytm. Questioned by many renowned financial analysts and investment firms, Paytm share value continued to decline before settling at Rs 1,340 after the first few trade days from listing.
Everyone thought that the worst is over and it was time for Vijay Shekhar Sharma to give serious thought to its business vision, mission, and offerings.
Little did they know that it was just a brief pause instead!
Since the beginning of December, Paytm’s parent One97 Communications shares started falling once again. As of today, December 11, 2022, it fell to a new 52-week low, after Macquarie Securities India suggested the company’s future earnings growth might be lower than expected.
On January 11, Paytm stock price fell to Rs 1,130 on the National Stock Exchange, sending a shockwave to all those who invested in Paytm stock during IPO anticipating a significant gain in a short span of time, similar to Zomato and Nykaa.
Paytm stock price target is now lowered by 25 percent to Rs 900, from Rs 1,200 earlier. This translates into a further 28 percent drop in value from the January 7 closing. Macquarie maintained its rating of the stock as ‘underperform’.
Macquarie’s pessimism about the company is evident when the stock has fallen over 38 percent since its November 18 high of Rs 1,955, dubbed ‘disastrous debut‘ on the stock market.
Macquarie stated in a note that “Post the various business updates and results, we believe our revenue projections, particularly on the distribution side, are at risk.”
Paytm’s revenue estimate was cut by 10 percent annually by Macquarie till fiscal 2025-26. This is due to lower cloud revenue and distribution, which have only been partially offset by increased sales from payment operations. After the revised calculation, Macquarie has lowered the estimated growth of Paytm from 26% to 23% in the next five years.
The regulatory headwinds are what Macquarie views as the “elephant in the room” for Paytm. According to the brokerage firm, the Reserve Bank of India is exploring the possibility of petting a cap on digital payment charges, which would have a direct impact on Paytm’s revenue as well as its stock price.
Paytm was recently denied entry into the insurance broking market and now it highlights the risks that fintech faces when trying to clear regulatory hurdles.
One of the other reasons behind Macquarie’s decision to lower the valuation of Paytm further is the mass departure of talent from Paytm. In the last few months, many senior executives resigned from Paytm. This is concerning and could result in a decline in business if the current pace of attrition continues.
Macquarie is also concerned about Paytm’s lending operations. The company’s management has touted them as a key growth driver prior to the initial public offering. Macquarie pointed out that Paytm is witnessing a declining trend in average loan ticket size, which now stands at less than Rs 5,000.
“At this size, we don’t think it is doing many merchant loans and most of the loans are small value BNPL (buy now pay later) loans. Hence, the eventual distribution fees realised by them are likely to be much lower than our earlier estimates,” Macquarie said.
The constant downwards trend in Paytm stock price is a concerning affair for the industry and investors. During the last investment round before the IPO debut, Paytm valuation stood at $16 billion. By setting its share price at Rs 2,150 apiece for IPO the company assessed itself worth $20 billion. However, the decline in the share price has wiped off nearly half of its valuation in less than 2 months.
Indeed, the road ahead is turning out to be an uphill battle considering retail investors and Macquarie continue to lose confidence in Paytm. Estimating Paytm stock worth no more than Rs. 900 will tank Paytm valuation to just $8.4 billion. And if that happens, you never know, that could completely kill all the excitement and enthusiasm of investors towards Indian startups.