$10 Billion Down The Drain In 2 Months: Paytm at 50%, Good To Buy?

Paytm valuation tanked to half after the stock price crashed to 52 weeks low on January 13, 2022. However, the latest projection from JP Morgan, Goldman sends some positive indications to investors towards One97 Communication stocks.

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The share of One97 Communications, the parent company of Paytm, fell 51 percent to Rs 1,063.75, the new low, against the issue price of Rs 2,150 at the BSE on Thursday’s intraday trade. The decline has stressed the market conditions further for Vijay Shekhar Sharma, Founder & CEO of India’s fintech giant, who once claimed that Paytm share at Rs 2,150 was undervalued.

The decline on Thursday cut the valuation of Paytm to half in less than 2 months since the company went public. Paytm floated its IPO with a $20 billion valuation on November 08, 2021. However, the lukewarm response to IPO forced the company to list its share at a discounted price of Rs 1,950 in anticipation of the surge in demand which, in turn, drive the price of the stock upwards. Unfortunately, this move failed to win the confidence of investors.

On January 13, 2022, for the eighth consecutive trading day, the stock has fallen 21% during that time. It made its debut on the market on November 18, 2021.

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According to BSE data, Paytm is now ranked at the 77th spot in the overall market capital ranking. It was in the 50th spot on the day of the listing.

The fall in the stock of Paytm is highly influenced by the report published by Macquarie, a broker firm. Despite all the clarification and efforts made by the management One97 to seize the crash, it retained its rating of ‘underperform’ and reduced the target price to Rs 900 per share.

“We cut our earnings (increase our loss projections) by 16-27 per cent for FY22-25E owing to lower revenues and higher employee and software expenses. We cut our TP (target price) sharply by Rs 25 per cent owing to a lower target multiple of 11.5x (Price to Sales ratio) (from 13.5x earlier) and lower sales numbers,” the brokerage said.

The latest report highlights the attrition in senior management that the company is struggling with, a low average merchant loan size of sub-Rs 5k over the past year, and regulatory uncertainty in the fintech and insurance space as a few of the primary concerns behind lowering the stick price projection of One97 Communications.

On Wednesday, CEO Vijay Shekhar Sharma blamed the wrong timings and said that the Paytm share price performance was in line with its peers globally over the past six months due to macroeconomic factors.

“Macro factors like quantitative easing, free money due to US monetary policy and other parameters led to a spook in the market in terms of pricing the IPO. Paytm’s shares have received a similar response to that of global peers in the last six months…But that is not a complete reasoning. What happened to the IPO is still a question,” he said.

Unfortunately, there seem to be very few takers for Vijay’s optimism as the stock continues to decline.

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But not everything is going against Paytm. Amidst all the trouble and tough market conditions, One97 is dealing with the latest reports from JP Morgan, Morgan Stanly and Goldman have given much-needed support to Paytm at this stage. The investment firms have set a target price of Rs 1,650 to Rs 1,850 within a year.

It would be interesting to see with the projections from JP Morgan and others infuse positivity and excitement among investors towards Paytm stock. Whatever be the case, losing half of the valuation in less than 2 months of listing, triggers a debate on the valuation metrics followed by the private investors and leads us to a question, “Is the Indian startup ecosystem in a massive valuation bubble?”

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