The subdued listing of Paytm will undoubtedly hurt investors who bought shares at Rs 2,150 in the initial public offer (IPO) but for the larger private equity and venture capital shareholders of the company who offloaded their shares as part of the public issue, it has been a highly lucrative journey.
On Thursday, shares of One 97 Communications – the parent entity of Paytm – made their debut on the bourses and it was a disappointing one to say the least. The shares opened at Rs 1,955 and fell to a low of Rs 1,586.25 – over 26 per cent lower than the issue price - during the morning session.
At 12:25 pm, the shares were trading at Rs 1,670, down 22.33 per cent from its issue price.
While the listing has been disappointing for the lakhs of investors who bought shares of the digital payments and e-commerce major in the IPO, the picture is completely different for the PE and VC firms that sold a part of their stake in the IPO.
Reason being, the average cost of acquisition for these institutional investors was much lower than the issue price. For some, the acquisition cost was just in double digits.
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According to disclosures made in the draft offer document of Paytm’s IPO, the average cost of acquisition for SAIF III Mauritius Company was only Rs 15.40 while that for Elevation Capital V FII Holdings it was Rs 77.70. In other words, it is nearly a 140-fold jump in terms of return on investment for SAIF III while for Elevation Capital V FII Holdings it is nearly a 28X return.
Further, SAIF Partners India IV and Elevation Capital V got it for Rs 305.60 and Rs 441.80, respectively. As per the draft document, the average acquisition cost for Alibaba.com Singapore E-Commerce was Rs 583.40.
For Antfin (Netherlands) Holding BV and Softbank’s SVF Panther (Cayman), the cost was between Rs 1,820 and Rs 1,834 while the average cost of acquisition for BH International Holdings was Rs 1,278.70, as per the draft offer document.
Deepak Ahuja, an angel investor and a former banker, believes that Paytm valuations are high considering the concerns related to profitability. Incidentally, Paytm registered a loss of Rs 1,701 crore in the financial year 2020-21.
“I think Paytm was trying to capitalise on the IPO frenzy that has caught the Indian markets in the last couple of months and I think they wanted to take advantage of that. However, retail investors are getting smart and they realised that it won’t be a sustainable pricing so they waited,” said Ahuja.
“Paytm’s non-profitability remains the biggest concern as they are not giving any projections on profitability for the next few years. As a start-up in growth stage, it is okay to have a good top line but once listed, investors want to see the real financials and numbers,” he added though he feels that it is too early to write off Paytm since it has become a household name.
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