I’m “just overwhelmed,” mentioned Vijay Shekhar Sharma, whereas wiping tears from his eyes. He was addressing an viewers on the itemizing ceremony of One97 Communications, the mother or father firm of digital funds big Paytm.
During November’s itemizing ceremony, Sharma referred to as the corporate’s function of bringing thousands and thousands of Indians into the mainstream financial system “pious.”
Investors, nonetheless, seem to disagree — Paytm’s inventory crashed 27% on its first day of buying and selling.
Four months later, issues have solely gotten worse. The agency’s inventory is now buying and selling shut to 560 rupees ($8), greater than 70% under its supply worth, in accordance to knowledge from Refinitiv.
It shouldn’t be the one Indian web firm that has soured on the inventory market this yr. While Paytm has been a flop since day one, different Indian tech giants whose debuts have been red-hot compared have additionally plunged in current months.
Instead, it has turned into a giant, fats actuality verify for tech corporations, with retail buyers questioning their enormous valuations. The steep plunge in these shares has additionally probably thwarted IPO plans for different Indian corporations — at the very least for the foreseeable future.
“Last year, there was an IPO frenzy and people were willing to pay the aggressive valuations these companies demanded,” mentioned Piyush Nagda, head of funding merchandise at Mumbai-based brokerage Prabhudas Lilladher. “But those retail investors were looking for immediate listing day gains.”
“Other investors who got on the bus after the IPO may be repenting now,” he added.
Paytm’s flop
India’s tech IPO social gathering — which began with Zomato final yr — got here to a screeching halt with Paytm’s debut.
While the inventory has trended decrease for many half since its itemizing, March has been notably tough for the funds firm.
Paytm launched its Payments Bank in 2017 as a three way partnership with Sharma. It can settle for deposits and problem debit playing cards however can not lend cash to clients.
The RBI mentioned it will enable Paytm’s Payments Bank to add new clients “after reviewing [the] report of the IT auditors.”
“We believe RBI’s direction will not materially impact Paytm’s overall business,” an organization spokesperson mentioned in a press release.
In a be aware final week, Macquarie analysts predicted a bleak future for the corporate.
The RBI ban and Paytm’s “Chinese ownership” make it “significantly” tougher for the financial institution now to get a license from the regulators to improve and begin lending, they wrote.
“Given this, and competition from other fintechs in the payments space, we remain skeptical about Paytm’s longer-term ability to generate free cash flow,” they added, slashing Paytm’s goal worth to Rs 450 ($6).
All this dangerous information for Paytm comes on high of its lack of clear path to profitability, which has perturbed analysts since its IPO launch. Paytm reported a lack of $104 million for the December quarter.
And it isn’t simply Paytm that has failed to impress buyers with newest earnings.
Zomato — which stays a loss-making firm — had scored huge with its IPO in July final yr, however its inventory has fizzled recently, declining over 40% alone for the reason that begin of this yr.
“Venture capitalists have the stomach to digest these numbers,” mentioned Nagda, whereas speaking about lack of earnings amongst Indian tech giants. “But retail investors react immediately once they see quarterly numbers.”
Zomato didn’t reply to a request for remark.
Mihir Vora, senior director and chief funding officer at Max Life Insurance referred to as this second a “reality check” for India’s cash-guzzling tech companies, which want to take part in additional “regular investor communications.”
“The cash burn is too large,” he mentioned. Markets need to know “where the next round of funding is coming from.”
What’s subsequent?
Paytm’s nosedive, adopted by the battering different tech shares have obtained in India recently, could also be forcing different corporations to rethink their IPO plans.
“It’s considering also halving its expected valuation from the $12 billion originally targeted,” Bloomberg added, citing unnamed sources.
In an e-mail to CNN Business, OYO “strongly” denied the assertions made within the report. “OYO continues to receive investor interest as we await approval from the regulator,” it added, however declined to disclose any particular particulars.
Paytm’s smaller rival Mobikwik has mentioned it will defer its IPO, initially deliberate for November final yr, by a couple of months. The firm instructed CNN Business final yr it will “list at the right time,” with out sharing every other particulars.
Despite the present turmoil, most international buyers say that India stays engaging for them, supplied corporations coming to market are extra real looking about their valuations.
“There is no emerging market that offers the growth opportunities that India does,” mentioned Nuno Fernandes, portfolio supervisor of the rising wealth technique at GW&Okay Investment Management. But he additionally mentioned that he discovered most valuations by Indian tech giants final yr “completely unwarranted” and hopes different startups can be extra cautious now.
“My recommendation to the management is that it is better to be modest and be successful in the IPO, rather than have it falter.”