Warren Buffett’s maiden investment in India has gone all wrong

When Oracle of Omaha Warren Buffett decided to invest $300 million in Paytm at a valuation of $10 billion in 2018, people were confident about the success of Paytm in the stock market. Little did anyone know that his first and only investment in India would soon turn into a loss-making bet, and would lose tens of millions of dollars.

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When Warren Buffet invested $300 million in Paytm, people became confident about the success of Paytm in the stock market. Little did anyone know that Buffett’s first and only investment in India will soon turn sore.

The struggle for Paytm, once looking for a highly promising fintech startup, is far from over, apparently. Instead of bringing fortunes to its investors, the investment in Paytm stocks has turned into the worst nightmare of a decade. Almost every investor who was anticipating huge gains from Paytm has incurred heavy losses from the very first day of Paytm listing on the stock market.

We covered the Paytm IPO debacle extensively.

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The free fall of Paytm stock price continues and the situation doesn’t seem very promising in the future either. If winning the confidence of retail investors is the biggest challenge at the moment, the deteriorating conditions between Ukraine and Russia are knocking on doors only to make the matter more cumbersome for Vijay Shekhar Sharma, CEO of One97 Communications Ltd, the company that owns Paytm.

Amidst all the challenges Paytm stocked has tanked to an all-time low to Rs 840 on Monday, 14 February 2022 Rs 695 on Monday, 14 March 2022.

With Paytm reaching new lows almost every other day, investment powerhouse such as Warren Buffet’s Berkshire Hathaway is incurring massive losses on its maiden bet in India. According to the Red Herring prospectus (RHP) of Paytm, the average buying price of BH International Holdings was Rs. 1,279 – much higher than the Rs 851 Rs 695 Paytm is currently traded at.

On Monday, Paytm tanked to a new low of Rs. 840.05 Rs. 695 bringing in a loss of more than 60 percent 67 percent for the investors who felt lucky, albeit for a very brief period, by getting Paytm stocks during the IPO at Rs. 2,150.

In September 2018, the estimated valuation of Paytm was $10 billion. Sensing it as a great opportunity to jump in Berkshire had invested $300 million, which is equivalent to Rs 2,179 crore, for a 2.6 percent stake in Paytm’s holding company.

During the Paytm IPO, along with a few other lead investors, Buffett’s Berkshire also decided to offload a small portion of its investment in Paytm anticipating huge gains after the listing. His decision was apparently influenced by the IPO-to-listing gains that other startup stocks, such as Zomato and Nykaa, gave to their investors. Berkshire liquidated just $24 million worth of Paytm shares and booked a profit of $16 million with a gain of 68%.

According to the latest data on shareholdings, Berkshire’s investment arm now owns 1.56 crore shares (or 2.41 percent stake) of Paytm as of December 31, 2021. It eventually means that Berkshire’s $276 million is still ‘stuck’ in Paytm and losing its value with each decline.

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As of today, when Paytm stock is trading at Rs 871 Rs. 695, Berkshire is sitting at the loss of $125.83 million. Even if we factor in the $16 million profit that Berkshire booked by selling a portion of its Paytm holding, the net loss is still as huge as $62 $110 million.

In simple words, Buffett’s $300 million maiden investment in India not just failed to meet the expectations of Oracle of Omaha but also got him to lose $0.38 on every dollar.

Buffett-owned Berkshire is not the only major investor that has incurred huge losses. The value of investment made by Antfin (Netherlands) Holding BV and SVF Panther (Cayman) in Paytm shrunk by 55 percent 62.1 percent as they bought Paytm share at about Rs. 1,835 per piece.

But there is a ray of hope for Paytm as there are few brokerage firms that have put their weight behind the constantly declining stock. Some of them are not just optimistic about Paytm bouncing back to its listing price, but they are also estimating profits. Dolat Capital is most bullish on Paytm with an estimated price of 2,530.

Goldman Sachs, one of the Big Four, recently lowered the target price of Paytm to Rs. 1,600, has once again slashed it to Rs 1,460. On the positive side, it has upgraded Paytm’s rating for the scrip to buy from neutral after the recently announced third fiscal quarter’s earnings.

Not everyone is so convinced with the earnings report still. The analysts at Macquarie Capital Securities (India) Ltd, the active critics of Paytm whose estimation & projections affected Paytm’s stock significantly, have further lost confidence in the stock as they cut their price targets to just Rs. 700 per share from the earlier estimation of Rs 900 per piece.

However, the biggest support for Paytm came from JPMorgan. In January it released a research report tagging Paytm with an “overweight” rating. It appears that JPMorgan is too bullish about Paytm as it established a target price of 1,850 rupees, citing the fact that shares trade at a discounted price to its private and global competitors.

The falling stock value of Paytm has affected Vijay Shekhar Shams as well, who owns 8.6% of One97 Communications, the parent company of Paytm. The value of stocks owned by his has tanked below $1 billion $830 million when Paytm’s stock value touched Rs. 840 on Monday Rs. 695 on Monday. Nearly $1.5 billion $1.7 billion has been eroded from Sharma’s net worth since the listing of the company in the stock market due to the declining price of its stock.

Forbes estimates Sharma’s net worth $1.3 billion $1.1 billion.

Despite all the efforts and increasing revenue, the fall in the stock price of Paytm is driven by the lost confidence among the retail investors. Down by 60% 67% from the IPO issue price, at present, it seems like an uphill battle for Vijay Sharma as the reported losses of the company are only widening.

Paytm reported a loss of Rs 738 crore in the third fiscal quarter ending December 31, 2021. It’s a 46% increase as compared to the year-ago quarter. Experts believe that given the improving market conditions now the losses are bound to go up amidst the increased expenses and overheads.

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