Size of issue, lack of support from i-banks haunt Paytm post listing

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November 23, 2021 12:15 AM

Even though some expensive public issues have fared well in recent times, sky-high valuations and absence of positive cash-flows/profits are now coming under scrutiny.

Sources claim that investment bankers could not mobilise support for the stock on listing day.Sources claim that investment bankers could not mobilise support for the stock on listing day.

Shares of Paytm E-Commerce continued to slide on Monday, as investors rushed to exit the stock. After shedding 27% on listing day, the stock slipped another 13.03% on Monday, taking the cumulative fall from the issue price to 36.73%. Fino Payments Bank also fell for the sixth day, having cumulatively lost 31.2% since listing. Even though some expensive public issues have fared well in recent times, sky-high valuations and absence of positive cash-flows/profits are now coming under scrutiny.

There are several factors that have impacted the post-listing performance of Fino and Paytm. While valuations, size of the offering and quality of the anchor book have come to haunt Paytm, the payments business model itself has come under a cloud after the runaway success of UPI. Investment bankers told FE that Paytm’s anchor book comprised pension funds and sovereign funds, which are in it for the long haul and are not bothered by the mark-to-market losses. However, investors did not find an exit after the listing as the issue was too big and there was not enough demand for its shares. Mutual Funds and foreign portfolio investors tend to keep a portion of their demand for the listing day supply. Sources claim that investment bankers could not mobilise support for the stock on listing day.

Explains Yatin Singh, head of investment banking at Emkay Global Financial Services, “The anchor book of Paytm had long-term funds like pension and sovereign funds that are not bothered by mark-to-market gains or losses resulting in lack of demand for the listing day retail and HNI supply. The anchor book and issue size can perhaps explain the post-listing decline. As far as Fino Payment bank is concerned, it is the business model, and the appetite for the offer was also tepid. Recent IPOs in the SFB space have also not done well on listing.”

After Paytm’s post-listing debacle, the conversation has veered towards unwieldy valuations of these new-age companies that are neither making profits nor having positive cash-flows. Market experts blame venture capitalists that tend to ratchet up valuations prior to the IPO through multiple rounds of investments. According to Deepak Jasani, head of research at HDFC Securities, “The valuations of new-age companies coming to the market have been high to excessive. Venture capitalists or PE investors have been allotted shares in these at lower valuations a few months ago or quarters ahead of the IPO. This is avoidable. This should come as a lesson to VCs and PEs that retail and individual investors may not subscribe to in future IPOs at any value to give them an exit. Overall, there is a question mark on growth in wallet and payments business after the runaway success of UPI.”

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