Stock Analysis

India’s Biggest IPO- A Hit or a Miss?

It’s raining IPOs in the country, with investors splurging on the issues of Nykaa, Zomato, Policy Bazaar, etc.The biggest of them all is the Paytm IPO that opened for public subscription recently.

Paytm, an abbreviation for ‘Pay Through Mobile,’ is an Indian multinational technology company which specializes in digital payments, e-commerce, and finance. It was founded in August 2010 by Vijay Shekhar Sharma in Noida. It started off as a recharge platform for prepaid mobile and direct-to-home (DTH) services, and soon added postpaid mobile and landline bill payment services.

From paying school fees, utility bills, and ticket bookings to launching Paytm Gold and Paytm Payments Bank, this company that became a unicorn in 2017 has come a long way.

Source – businessinside.co

Recently, in July 2021, Paytm’s parent company One97 Communications Ltd filed a draft red herring prospectus with the Securities and Exchange Board of India (SEBI) seeking to raise Rs. 16,600 crore. The company’s owners then diluted their holdings, pushing the Initial Public Offer (IPO) to an amount of Rs. 18,300 crores. They aimed to get a valuation of $20 billion through theIPO. It is the largest ever IPO in India and the fourth largest fintech stock debut globally.

Before we get into the jargon of Paytm’s mega IPO and what it means for investors, let’s understand what an IPO is in the first place.

What is an IPO?

An initial public offering refers to the offering of shares of a private company to the public in an issue of stocks for the first time. It is a fresh issue of the stocks of a company that is offered to the general public in order to raise capital for the company that is offering it. When a company files for an IPO, it is said to be ‘going public’ as its shares are now available for anyone who is interested in purchasing them, and hence contributing to the company’s shareholder equity.

Source – profitmust.com

About Paytm’s IPO

Paytm’s IPO opened on 8 November, the fifth anniversary of demonetization in India, with a price band of Rs. 2,080 – Rs. 2,150 per share, with a face value of Re. 1 per share. The face value of a share refers to the original or nominal value of a share. Investors could bid for a minimum of 6 shares and in multiples thereof. The issue closed on November 10.

Paytm’s IPO opened to a slow start on Monday, the first day of the three-day to window for investors to apply for shares. The allotment chunk set aside for the retail investors had been subscribed 78%, whereas institutional investors put in bids for approximately Rs. 17 lakhs worth of shares as compared to 2.63 crore shares set aside for them. The non-institutional buyers subscribed to a meager 2% of their reserved portion of 1.31 crore shares. On day 1, the overall subscription rate was 18%, with bids being received for 88.23 lakh equity shares against the 4.83 crore shares offered.

On day 2, that is 9 November, the IPO’s total public subscription was still at less than half, with only 48% being subscribed. Institutional buyers upped their stake to 1.2 crore shares out of 2.63 crores reserved. Non-institutional investors raised their subscription nominally from 2% the previous day to 5%. The segment that saw the most action in terms of subscription was the retail segment, which became oversubscribed on day 2 by 1.23 times.

The final day of the IPO, day 3, saw the most volume of subscriptions across all the segments of investors. According to data from the National Stock Exchange (NSE), investors bid for 9,14,09,844 equity shares by 5:00 pm of Day 3, against the total issue size of 4,83,89,422 equity shares. This translates into a subscription of 1.89 times.

The portion reserved for retail investors and the quota reserved for institutional buyers saw an oversubscription of 1.65 and 2.79 times respectively. On the other hand, the portion reserved for non-institutional buyers failed to be fully subscribed.

Of the institutional investors, 99% of the bids came from foreign investors, who rushed to subscribe to the issue post noon on the final day.

Source – Napkin Finance

Mixed response

The Paytm IPO has received a mixed response from analysts, with some calling it a good bet to ride India’s fintech wave and others pointing at expensive pricing. Other IPOs that listed before Paytm such as Zomato and Nykaa received massively strong subscription responses, with them being oversubscribed by 38.25 times and 81.78 times respectively. However, their issues were much smaller as compared to Paytm.

Hesitancy set in among investors as Paytm is faced by strong competition such as banks, which are now rapidly digitizing their processes and other UPI platform and mobile wallets such as Google Pay and MobiKwik, which is soon coming out with its own IPO.

Paytm, being a fintech company, is inherently a loss making company. For current valuations to sustain, the company must remain on paths of high revenue growth trajectory for a period of at least three years, with all its business verticals performing exceedingly well.
Paytm’s business model has also been questioned a few times recently. Paytm primarily acquires its customers through discounts offered, and their lending business is also threatened by well established banks which have been around for ages as well as other players in the financial space.

On the other hand, there are investors who are focusing on the long term growth of the company and are choosing to ignore the steep valuation that Paytm enjoys.

Written by- Snehi Shah

Edited by- Aditi Agarwal

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