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Shares in India’s Paytm plunge 24% in market debut, investors question business model

A man exercises in a gym near a barcode for Paytm, an Indian cellphone-based digital payment platform, in New Delhi on November 18, 2021.

Sajjad Hussain | AFP | Getty Images

Shares in India’s Paytm plummeted 24% in their maiden day of trade, with investors questioning the loss-making digital payments firm’s business model despite it having just completed the country’s largest-ever IPO.

Shares were changing hands at 1,645 rupees in morning trade versus the offer price of 2,150 rupees, valuing the Ant Group-backed company at around 1.07 trillion rupees ($14.4 billion).

If it were to fall as far as 1,560 rupees, it would hit the exchange’s 20% circuit breaker, at which point trading would be halted for the day.

“Paytm has been loss-making and there is no sign to turn profitable in near future,” said Parth Nyati, founder of Indian trading platform Tradingo.

Paytm, which also counts SoftBank among its backers, raised $2.5 billion in its initial public offering, of which $1.1 billion was from institutional investors. Last week it received $2.64 billion worth of bids for the remaining shares on offer, or 1.89 times.

Analysts at Macquarie Research said in a note to clients that Paytm’s business model lacked “focus and direction” and initiated coverage with an underperform rating. “Achieving scale with profitability a big challenge,” the note said, calling the company a “cash guzzler”.

Many market participants saw the stock’s crash on its debut as a sign that investors had become disillusioned with a recent string of IPOs with inflated valuations.

Paytm’s listing could bring “an end to obnoxious pricing in IPO markets”, Mumbai-based investment advisor Sandip Sabharwal said, adding that too many of the companies did not have a clear path to profitability.

Engineering graduate Vijay Shekhar Sharma founded Paytm in 2010 as a platform for mobile recharges. The company grew quickly after ride-hailing firm Uber listed it as a quick payment option in India and its use swelled further in late 2016 when New Delhi’s shock ban on high-value currency notes boosted digital payments.

Paytm’s success has turned Sharma, a school teacher’s son, into a billionaire with a net worth of $2.4 billion according to Forbes. Its IPO has also minted hundreds of new millionaires in a country where per capita income is below $2,000.

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