One 97 Communications Ltd., the parent firm of digital-payments platform Paytm, has capped the worst first-year share plunge among large IPOs over the past decade, Bloomberg stated in a report. Paytm’s stocks erase 75 per cent of its market value one year after its $2.4 billion initial public offering (IPO), the largest on record at the time in India.
The dive is the steepest first-year slide globally among IPOs that raised at least the same amount since Spain’s Bankia SA’s 82 per cent drop in 2012, data compiled by Bloomberg show.
According to the report, Paytm’s grim first anniversary underscores an erosion of confidence in its ability to become profitable after debuting at a time when the IPO market was enamoured with tech start-ups. It’s one among a slew of start-ups that listed with valuations seen by many as exaggerated.
Last week, Japan’s SoftBank Group Corp. sold shares it held in Paytm as a lock-up period set in the IPO expired, fueling a three-day slide. The move by SoftBank to sell 2.9 crore shares in the deal which is being led by Bank of America resulted in a drop of Paytm shares as much as 10 per cent. The news comes a day after the lock-in period for investors in Paytm’s November 2021 IPO closed. The stock’s losses have deepened this week amid concerns over the emergence of a potential competitor owned by India’s biggest conglomerate.
About 30 per cent slide in November has taken its decline from the IPO price of Rs 2,150 to 79 per cent.
Tech stocks globally have been sold off as investors shun loss-making firms amid a deteriorating macroeconomic environment, JM Financial Ltd. analysts led by Sachin Dixit wrote in a note this week. “This feedback has been well received by company managements and we are seeing all Indian internet companies not just prioritizing profitability but also communicating the path forward explicitly,” they wrote.
Paytm shares were sold at the top of a marketed range after an offering that attracted strong demand from individuals and funds, although they never traded above the listing price. The sale attracted traditional global stock pickers such as BlackRock Inc. and the Canada Pension Plan Investment Board.
“In every rally, the market as a whole gets too excited about something,” said Shridatta Bhandwaldar, head of equities at Canara Robeco Asset Management. “In 2006-2008, we got too excited about construction companies and capital goods companies. In 2013-2014, we got too excited about midcaps. In 2017-2019 we got extremely excited about non-banking financial companies and in 2020-2022 people were just too excited about technology.”
“Some of these companies have good business models,” he said, adding that “still, you feel there is not enough margin of safety because these are evolving businesses.”