(Bloomberg) – Stocks of India’s groundbreaking digital payments startup, Paytm, slumped a second day after it went public for $ 2.5 billion, marking one of the worst debuts ever for a major tech company.
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The stock fell about 14% on Monday after plummeting 27% on its Thursday debut, bringing its market value to about $ 12 billion. The decline has hit individual investors and global institutions like BlackRock Inc. and the Canada Pension Plan Investment Board who bought stocks.
Paytm’s parent company, One 97 Communications Ltd., fetched a record number of IPOs for India, but its disastrous trading debut sparked criticism that over-pushed the company and its investment bankers. Founder and Chief Executive Officer Vijay Shekhar Sharma had adamantly made it clear that Paytm would win the long-standing IPO record of Coal India Ltd. from 2010 should surpass. The Indian markets were closed on Friday due to a public holiday.
“Investors should wait a bit for the stock to calm down,” said Mohit Nigam, fund manager at Hem Securities Ltd. “The stock has too much volatility and too much pessimism.”
Over the weekend, Paytm released financial details for the month of October, which includes the critical time leading up to the Diwali holiday. Gross merchandise value rose 131% for the month to 832 billion rupees ($ 11.2 billion), the company said. Loan disbursements, which analysts see as key to Paytm’s profitability, rose more than 400% to Rs 6.27 billion.
A stumble from India’s largest digital payments provider could put off India’s stock market boom, which was among the most hectic in the world. The IPO has been touted by some as a symbol of the country’s growing appeal as a destination for global capital, especially for investors looking for alternatives to China.
Paytm’s IPO was managed by leading banks including Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., ICICI Securities Ltd. and Axis Capital Holdings Ltd. They all declined to comment or did not respond to requests for comment.
Critics have questioned Paytm’s prospects in recent months. While revenue in its core payment and financial services business increased 11% in March, total revenue declined 10% due to increased competition, the company reported in July.
Even before trading began, Macquarie Capital Securities (India) Pvt. Ltd. beat the company with an initial underperform rating and a target price of Rs 1,200, 44% below its IPO price.
“Given Paytm’s heavily cash-burning business model, lack of a clear path to profitability, major regulatory risks to the business and questionable corporate governance, we believe the company is overvalued at the upper end of the Rs 2,150 band,” the analysts say Suresh Ganapathy and Param Subramanian wrote in the note.
Others see the Paytm model showing promise as it builds on its growing customer base.
“Paytm is a strong company when it comes to technology, but they need to expand into the finance side of the fintech business,” said Deven Choksey, strategist at KRChoksey Investment Managers Pvt. “Just focusing on the technology won’t work.”
CEO Sharma has defended the company’s prospects. He gathered the staff during a four-hour town hall and encouraged them to overlook the case on the first day, according to the staff who attended.
Appealing to Elon Musk and Tesla Inc., Sharma reminded employees that the electric vehicle maker’s shares used to be some of the most short-sold stocks in the world. But the company overcame years of struggle to become one of the most recognizable brands in the world, he said.
The slump was “not an indicator of the value of our company,” said the 43-year-old in an interview with Bloomberg News on Thursday. “We are here for the long term. We will lower our heads and execute them. “
(Updates with market valuation in the second paragraph)
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