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Why Investors showed less enthusiasm for Paytm IPO?

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Ground Report | New Delhi: Paytm IPO Investors; One97-owned Paytm IPO (initial public offering) opened for subscription on Monday and was subscribed nearly twice the offer size when it closed on Wednesday. According to stock exchange data, Paytm, which had already raised $1.1 billion from anchor investors, received $2.64 billion worth of bids for the remaining shares on offer, or 1.89 times the total. Paytm’s public offering is the largest-ever public issue in the country (i.e 18,300 crore), even higher than Coal India’s IPO of more than Rs 15,000 crore a decade ago.

India’s biggest IPO did not enjoy the blow-out demand that investors afforded to the likes of Nykaa, Zomato, and PolicyBazaar. and here are the reasons for it.

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What Analysts Say?

Most analysts agree that the pricing of the shares is on the expensive side. Last month, Paytm upped the size of its IPO and priced it at 2,080-2,150 rupees per share, aiming for a $20 billion value that some retail investors thought was too expensive. According to some analysts, the business, which is focused on payments but advertised as an all-in-one app, may have failed to convince investors of its complicated model as well as its road to profitability.

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Holders selling their stakes

The IPO’s marquee investors reduced their holdings. Ant Group, which had a 28 percent stake in Paytm, is selling 47.04 billion rupees worth of shares, leaving it with a 23 percent ownership. With a 16.89 billion rupee share sale, SoftBank’s Vision Fund will reduce its interest in the company by 2.5 percentage points to 16 percent.

Weak Financials

The company’s financials look to be shaky as well, as it has never made a profit. Due to increasing operating losses and additional working capital demands, the company’s cash flows from operating activities were also negative in FY19, FY20, and FY21. Also, some fund managers believe that it could prove to be a “very high-risk bet” and the company’s valuation may not see a sizable jump when it lists on stock exchanges.

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Impact on Grey Market Premium (GMP)

Following the underwhelming reaction from bidders, the grey market for the Paytm IPO has remained flat. The grey market premium usually gives a rough indication of what the company’s share value will be after getting listed on the stock exchanges. Paytm IPO GMP today is ₹30 and it has remained unchanged from its yesterday’s evening grey market premium.  Paytm is likely to make its debut on the stock market on November 18.

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