Paytm shares under scrutiny after 27% 1st-day crash followed record IPO

Paytm share price today will be closely watched by traders after it plunged 27% on its debut Thursday following a record initial public offering. Paytm’s parent company, One 97 Communications Ltd., raised $2.5 billion in its IPO, the most-ever for India, but its disastrous trading debut sparked criticism the company and its investment bankers had pushed too hard in the offering. Founder and Chief Executive Officer Vijay Shekhar Sharma had persistently made clear that he wanted Paytm to surpass the long-standing IPO record set by Coal India Ltd. in 2010. Indian markets were shut Friday for a holiday. Paytm is India’s pioneering digital payments startup.

Over the weekend, Paytm released financial details for the month of October, which includes the critical period ahead of the Diwali holiday. Gross merchandise value rose 131% to 832 billion rupees ($11.2 billion) for the month, the company said. Loan disbursals, which analysts see as key to Paytm turning profitable, increased more than 400% to 6.27 billion rupees. 

“The stock price may not go down significantly since 87% of issue was subscribed by institutional investors, who can always support the price,” said Deven Choksey, a strategist at KRChoksey Investment Managers Pvt.

India’s largest digital-payments provider lost more than a quarter of its value in its first day of trading, marking one of the worst-ever debuts by a major technology company and casting a chill over a stock-market boom that had ranked among the world’s most frenzied. The IPO had been touted by some as a symbol of the country’s growing appeal as a destination for global capital, particularly for investors looking for alternatives to China.

Paytm’s IPO was managed by leading banks, including Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., ICICI Securities Ltd. and Axis Capital Holdings Ltd. They all either declined to comment or didn’t respond to requests for comment.

Critics have questioned Paytm’s prospects in recent months. While sales at its core payments and financial-services arm rose 11% in the year ended in March, overall revenue dropped 10% amid intensifying competition, the company reported in July. 

Even before trading began, Macquarie Capital Securities (India) Pvt. Ltd. slapped the company with an initial “underperform” rating and a price target of 1,200 rupees, 44% lower than the IPO price. 

“Considering Paytm’s heavily cash-burning business model, no clear path to profitability, large regulatory risks to the business and questionable corporate governance, we believe the company is overvalued at the upper end of price band of 2,150 rupees,” analysts Suresh Ganapathy and Param Subramanian wrote in the note.

CEO Sharma has defended the company’s prospects. He rallied employees during a four-hour town hall and encouraged them to look past the first-day drop, according to local media. 

The slump is “no indicator of the value of our company,” the 43-year-old said in an interview with Bloomberg News on Thursday. “We are in it for the long haul. We’ll put our heads down and execute.”