Paytm shares fall for a second day, wipe out Rs 50,000 Cr in market cap

Concerns around overvaluation of the company have pressured Paytm's shares, experts said.

Paytm shares fall for a second day, wipe out Rs 50,000 Cr in market cap

Monday November 22, 2021,

3 min Read

Paytm's shares continued their downward trend on Monday, falling as much as 15.7 percent to Rs 1,271 in afternoon trading, and knocking off over Rs 50,000 crore off its market cap.

The fintech giant's shares have fallen over 36.4 percent from their issue price of Rs 2,150.

Paytm's decline was in line with a broader market depression — blue-chip NSE Nifty 50 index was down 2.48 percent at 17,337.70, while the benchmark S&P BSE Sensex fell 2.4 percent to 58,222.63 at 2:42 PM IST.

The main reason behind the plunge in Paytm's shares since it debuted last week has been due to concerns around its steep valuation, its path to profitability, and no clear visibility in its business model. Brokerage firm Macquarie, on the first day of Paytm's trading, rated the stock 'underperform', and cut its target price 40 percent from its issue price to Rs 1,200 apiece.

"Dabbling in multiple business lines inhibits Paytm from being a category leader in any business except wallets, which are becoming inconsequential with the meteoric rise in UPI payments," Macquarie analysts said in their note.

"Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view. Unless Paytm lends, it can’t make significant money by merely being a distributor. We, therefore, question its ability to achieve scale with profitability," it added.

Paytm tried to stem the tide by announcing that its gross merchandise value (GMV) for the quarter ending September 30, 2021 has risen 107 percent versus the same period a year ago.

It also said it had doubled down on loan disbursals: in the second quarter, it disbursed 2.8 million loans versus 0.35 million in the year-ago period. Analysts have noted that Paytm's lending business is a bright spot in its business plan and more efforts in that direction could help shore its value in the markets.

The update on its GMV did little to curtail the selling spree though. The decline has also cast a pall over the impending IPOs of MobiKwik and PolicyBazaar, and seems to have taken the shine off of tech startups making their way to the capital markets, experts said.

In a recent interaction with Moneycontrol, BharatPe's Ashneer Grover said Paytm has mispriced its IPO, and gave Chinese investors their money back at the cost of the public market.

"I used to tell investors that there’s going to be two markets — pre-Paytm and post-Paytm because post Paytm is going to tank and that is exactly what has happened. The reason is quite simple, you have mispriced your IPO," Moneycontrol reported Ashneer as saying.

"You did a Rs 18,300 crore IPO out of which 55 percent was secondary. You did a price optimisation. It’s the Chinese investors who sold their shares through this IPO. Indian market ko kharab karke apne Chinese investors ko unka paisa wapas diya hai. (You disrupted the Indian market to return Chinese investors’ money)," the report added.

Edited by Kanishk Singh