Paytm Stock and Investors a failed Love Story

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November 18, marked the listing of One 97 Communications Ltd (NS: PAYT ), one of the most prominent Indian companies by Vijay Shekhar Sharma. Listings are common but this was India's biggest initial public offering (IPO) in history. It was successful in creating huge hype in the market way before its actual listing. A major section of investors was praying to get the IPO. But against all favours, on the first day of trading, India's largest IPO in history experienced a 27 per cent drop. Some popular market researchers predict that Investors should be wary about buying stock even in the future. Paytm is the second online IPO to fail on its first public offering (IPO).

With an offering size of Rs. 18,000 crore, the IPO was listed on both the National Stock Exchange and the Bombay Stock Exchange.

People are still perplexed as to what caused the unicorn's enormous failure, and we are here to explain why it failed.

Pricing Issue

According to researchers, the biggest cause of the failure is hefty pricing. Paytm is valued at about 26 times its projected price-to-sales in FY23. At the high end of the pricing range, Paytm's shares are valued around Rs 2,080-2,150 crore, pricing the firm at $1.39 trillion, this makes Paytm's investors not see any profit in future. Paytm's profitability runway is too lengthy, and the exorbitant price does not support it.

Competitors

Paytm is up against a lot of huge sharks that have been more profitable than it is. Paytm has been surpassed by other market rivals who have outpaced the company's metrics including PhonePe, Google (NASDAQ: GOOGL ) Pay and BHIM. This will lead to Paytm having challenges in expanding its operations in the future. PhonePe, which accounts for 42 per cent of all UPI transactions in the nation, is the company's largest danger.

Future prospects are uncertain

Fintech's lending segment is the most profitable revenue generator. To be in the good books of analysts, a financial services business must have a lending division. The lack of this license to establish the lending company is a key source of suspicion. Paytm has raised a total of Rs. 190 billion in equity capital. It is a source of considerable worry because 70% of it, or Rs. 132 billion, has been utilized to compensate the corporation for its losses.

Analyses and Reports with flaws

And lastly, tons of blogs and reports like this establish fear in the minds of investors. Paytm's profitability runway is too lengthy, and the exorbitant price does not support it. Experts have questioned Paytm's business model, which faces stiff competition from competitors such as Google Pay, PhonePe, and others. A faulty business model serves as a cover for a decrease in liquidity flows. Analysts are concerned that Paytm's underwhelming launch may have an influence on future IPOs, particularly those involving startups. A faulty business model serves as a cover for a decrease in liquidity flows.

While Indian investors are eager to acquire Paytm shares in the future, they should be prepared to take the risk.

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  • Vikas Raj @Vikas Raj
    Good article apart from the obvious error in pricing of the firm to more than 50 times to what it was. Based on your analysis and competitive environment what should have been realistic pricing of IPO? Also its fallen now to lessthan 800. Is that an attractive valuation and if not what should it be?
    Like 1
    • Anirudh Singh @Anirudh Singh
      @Vikas Raj thanks for your feedback..
      Like 0
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  • Jai Hind @Jai Hind
    Wonderful article. Encourage you to continue on this theme. Maybe try to get an interview with someone there? You are great 🍻
    Like 4
    • Anirudh Singh @Anirudh Singh
      @Jai Hind sure ..i will keep remember...
      Like 0
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  • Anurag Anurag @Anurag Anurag
    "pricing the firm at $1.39 trillion" - It was only around 20 billion
    Like 5
    • Sasikumar Ramkumar @Sasikumar Ramkumar
      @Anurag Anurag yes it was Rs.1.39lakh crore, roughly around $18billion
      Like 2
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  • Sasikumar Ramkumar @Sasikumar Ramkumar
    Apart from these factors, also the US inflation & Russia war has caused the downfall which can be seen among other major fintech peers like Paypal, Square etc who have around 60% downfall
    Like 3

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