Paytm last week wrapped up India’s largest IPO with a Rs183bn (US$2.47bn) listing, although the response was not strong as the market had expected.
After three days of bookbuilding, the Ant Group-backed mobile payments company priced a primary tranche of Rs83bn and a secondary portion of Rs100bn at the top of the Rs2,080–Rs2,150 range, finally displacing Coal India's Rs155bn 2010 IPO as the country's biggest.
While the Rs82.4bn anchor tranche was 10 times covered with participation from top-tier global investors such as BlackRock, Canada Pension Plan Investment Board and the government of Singapore, the other 55% of the offer was less sought after.
Excluding the anchor portion, the remaining portion was only covered in the last day of bookbuilding on Wednesday, with overall demand equal to 1.89x the shares available. The institutional tranche was covered 2.79x, the high-net-worth investor portion 24% and retail 1.66x.
By contrast, the Rs93.8bn IPO of food delivery start-up Zomato in July was fully subscribed on day one and eventually more than 38 times covered. The shares have gained around 85% since listing. Paytm's float, though, is twice the size of Zomato's.
TPG-backed Indian online beauty retailer Nykaa, officially known as FSN E-Commerce Ventures, saw its shares soar 96% on debut on Wednesday after an 82 times covered IPO.
Overvalued
Some analysts said investors had doubts about Paytm's ability to turn profitable soon enough to justify its rich valuation.
The top-end pricing values the company, which is also backed by SoftBank and Berkshire Hathaway, at US$18.5bn. It was valued at US$16bn in 2019.
Analyst Shifara Samsudeen of LightStream Research said the IPO was overvalued and advised investors to stay on the sidelines.
“The company generates about 75% of its total revenue from payment-related services which has not yet been able to generate profits due to its higher payment processing charges whereas PayPal and Global Payments have been generating strong margins,” said Samsudeen in a report published on research portal Smartkarma.
Samsudeen values Paytm at Rs1,127.50 per share, 48% less than the issue price.
Paytm, officially called One97 Communications, reported total income of Rs32bn for the 2021 financial year ended in March, down 8.6% from Rs35bn in 2020. Its net loss narrowed 41% to Rs17bn from Rs29bn.
Long-term view
The company and bankers on the deal, however, are not too concerned about the subscription outcome.
“We saw many global investors in the deal as they are taking a long-term view on the company, similar to when they invested in Chinese technology companies 10 years ago,” said one of the bankers.
According to stock exchange data, institutional investors bid for 73.7m Paytm shares, of which 99% came from foreign institutional investors.
A Paytm spokesman said the company is overwhelmed with the outstanding response from institutional investors, financial giants, mutual funds and retail investors.
“Paytm’s achievement today is not just ours alone but is also a testament to the India story, our start-up ecosystem and the depth of the Indian capital markets," said the spokesman.
Local brokerage Indsec Securities and Finance recommended Paytm as a long-term buy.
“Paytm’s cash generating capability remains a concern to us and competition from unlisted players such as Gpay, PhonePe also remains a risk. However, Paytm is backed by marquee investors which we believe will continue to support the cash burn by the company to scale up its platform. We believe the company has immense untapped opportunities to grow and increase its platforms,” Indsec said in a report.
Paytm will use the IPO proceeds to strengthen its payments ecosystem and for new business initiatives and acquisitions.
Axis Capital, Goldman Sachs and Morgan Stanley were joint global coordinators, and bookrunners with Citigroup, HDFC Bank, ICICI Securities and JP Morgan.