Earlier this year, One97 Communications, Paytm's parent firm, had announced itself for the initial public offering (IPO). The news was met by tremendous enthusiasm in the stock markets. Furthermore, to increase the anticipation, the Securities and Exchange Board of India (SEBI) made an official disclosure. SEBI had approved the market regulator's approval of Paytm IPO listing at a massive Rs 16,600 crore ($2.2 billion). It meant the company became the biggest Indian IPO filling in a decade to go public at a valuation of $30 billion.
One of the reasons this Noida-based company, founded by Vijay Shekhar Sharma IPO announcement, ended up meeting with such hype is the revolution it created in the Indian payment market. Starting from being a mobile recharge app to launching its mobile wallet, Paytm dominated India's payment markets. It made itself the household name across the nation with its strong user and merchant base. As per the financial year 2021, Paytm has accumulated around 20 million merchants and 350 million users.
What were the Paytm IPO Details?
The Paytm IPO listing had its price band fixed at Rs. 2,080 to 2,150 per share. It had a lot of six shares initially, which after further application, were increased in multiples of 6 shares. The Qualified Institutional Buyers (QIBs) had reserved 75% of the total issue size. The remaining 25% was distributed between non-institutional investors (NIIs) and retail investors. The NIIs received 15% of the reservation from it, while the retail investors rounded the reservation with the leftover 10%.
Where Did Paytm Plan to Use its Funds?
One97 Communications filed the DRHP (Draft Red Herring Prospectus) at Rs. 16,600 crores. It will use the funds to strengthen and develop the Paytm ecosystem. It will aim to achieve the planned goals by acquiring and retaining consumers and merchants by deploying new business initiatives and strategic partnerships.
What Happened with Paytm on Market Listing Day
Hours after Paytm became a public trading company, headlines flew everywhere, leaving the entire nation in shock as its share prices have fallen by 27.25%. For a better comparison, the issue price that was fixed at Rs. 2,150 fell to Rs. 1,564 till the market closed for the day.
The tepid response caused a significant impact on its parent company, One97 Communications Limited, and its founder Vijay Shekhar Sharma. His emotion was evident while he addressed the BSE as he was seen shedding tears. Later on, we found him saying, "People tell me how do I raise money at such high prices, and I just tell them that I never raise money on the price, raise money on purpose."
Earlier in the day, before the listing happened, Sharma had tweeted, "Man, I can feel for our cricket team! So many messages, wishes, & kind words. It feels like carrying the hopes and aspirations of young India to the Stock Market. From coal to fintech, in 11 years - India has transformed. To every Paytmer, you've changed India for good."
It brings us to an important question – what exactly happened with Paytm IPO? Let's find out.
Paytm on the Market Listing Day
As mentioned above, the share prices of Paytm fell a sharp 27.25% from Rs. 2,150 to 1,564 by the time market closed. On the Bombay Stock Exchange (BSE), the stock was listed at 9%, which amounted to Rs. 1,955 when the market opened. Meanwhile, at the National Stock Exchange of India Limited (NSE), Paytm was listed at Rs. 1,950. There it dipped to Rs. 1,560 by the time the market closed. Thus, netting a dip of 27.44% compared to its fixed IPO share prices.
Despite the significant worrisome dip, Vijay Shekhar Sharma was later found saying that his company isn't bothered by the loss of one-fourth of its fortune. He further said, "I've never felt more excited, optimistic and enthusiastic about the future. The slump is no indicator of the value of our company."
What Caused the Paytm IPO Failure?
Paytm has raised Rs. 18,300 crores from investors earlier in the month of its IPO. Hence, it was mind-numbing for it to have met with such a fate. Not to mention, Paytm was also India's most extensive initial public offering. As a result, it raised several questions around the recent IPO frenzy ushered by the Zomato IPO and the cause of Paytm's failure. So, what caused its massive, unexpected failure on its biggest day? Here are they:
Pre-IPO Valuation
It appears Paytm tried to jump into the ongoing IPO frenzy and ride its luck without paying any importance to the valuation. Valuations are essential for any investment, and it was well emphasized by Devon Chokey, managing director of the KR Choksey Investment Managers. He said, "It is a lesson for everybody, including investors and regulators. Valuations are the key for any investment and one should ignore the hype and frenzy. A pre-IPO valuation report for companies should become the norm since market regulator SEBI is also allowing loss-making companies to tap the market unlike earlier when only those having a three-year profit track record could go for an IPO."
Lack of Focus and Direction
Paytm was constantly dabbling with multiple business ventures. While the company achieved success in almost every business line, it got into it, and it worked against them somewhere. Their whole idea of having the fingers everywhere prevented them from gaining a solid footing at one place and becoming a market leader in any category. Such practices worked against it since the competition and regulations are bound to bring down unit economics and hinder the company's overall growth prospects.
What does Paytm IPO Failure mean for Future IPO?
While the company continues to look for ways to bounce back from the shattering loss, its failure may turn out to be a blessing for the IPOs of the new-age tech startups. It just highlighted why companies shouldn't rush themselves to IPO listing, and instead, its investors must take every aspect of the company before going public. Also, it will help in calming the IPO rush amongst retail investors, which is due to the year's bullish stock market momentum.
Even Mahindra Group chairman Anand Mahindra said that while his heart goes to Paytm's "sobering debut," it will ensure moderating the IPO listing moving like a casino frenzy. Furthermore, it will emphasize hunting for its actual value before making any such plans.
An After Effects of The Paytm IPO Failure
MobiKwik had earlier announced that it is planning to go public. However, after the Paytm IPO's failure, its CEO Bipin Preet Singh had announced the postponement of the firm's IPO plan. It also raises a warning to all the Hot Upcoming IPOs to not try and cash in the IPO frenzy.
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