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IPO: Paytm’s IPO flop could embitter millions of private investors

A staggering two-day slump in India following its IPO casts a shadow over the prospect for tech companies preparing to go public in the country’s supposed breakthrough year.

Private investors who bought an unprecedented number of shares in Paytm parent company One 97 Communications Ltd. have lost more than 35% of their value in just two trading sessions. Further losses could be threatened if the stock moves from its Monday closing price of 1,359.6 rupees to that of Macquarie Group Ltd.

“The event will in a way get people to be cautious and not take the market for granted by blindly placing bets,” said Gopal Agrawal, Managing Director and Co-Head of Investment Banking at Edelweiss Financial Services Ltd. “It is important that a Company’s history and prospects are well understood by investors.”

India’s stock markets have been in turmoil this year, buoyed by a central bank cutting interest rates to record lows and millions of new retail investors seeking higher returns on riskier assets. The rally encouraged at least half a dozen tech startups to seek public listings, including that from SoftBank Group Corp. supported Oyo Hotels & Homes and the logistics provider Delhivery Pvt.

At least some of the IPO prospects who were “on the periphery” and wanted to benefit from the flood of transactions could now rethink the timing and pricing of their issues, Agrawal said.

Companies in the South Asian nation raised  -proximately $ 15 billion from initial public offerings this year, which is already a record for the year in total revenue. Critics have questioned the ratings of some of these IPOs as they are still loss making companies.


“The pandemic sparked tremendous technology adoption in the country, which has been priced into the reviews of many tech companies,” said Ashutosh Sharma, vice president and director of research at Forrester Research Inc. “Is this the beginning of a downward trend? I do not know. But going forward, investors will be cautious about the risks and future business prospects of tech companies. ”

Valuing Paytm at roughly 26 times its estimated price-to-sales ratio for fiscal 2023 is expensive, especially if profitability remains elusive for a long time, say Suresh Gan -athy and Param Subramanian of Macquarie C -ital Securities (India) Pvt. wrote in one of the few research p -ers about Paytm’s prospects. Most fintech companies around the world are trading at 0.3-0.5 times the price-to-revenue growth ratio, they said.

Paytm’s large IPO size also constrained demand, which could bode well for smaller potential IPOs. The food delivery  -p Zomato Ltd. and beauty startup Nykaa – both smaller than Paytm’s offering – have got their shares up more than 80% since going public.

Edelweiss’ Agrawal suggests that share sales should be valued in such a way that “something remains on the table for investors”.

“If an issue could be valued 10% up or down, it would be wise to pick a lower price that offers much more upside potential when trading,” he said.

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