After a weak market debut on Dalal Street today, shares of digital payment firm Paytm tanked 26 per cent to hit an intraday low of Rs 1,586.25 against the issue price of Rs 2,150.
The shares listed at Rs 1,955 on BSE, a discount of 9.06% to the issue price. Later, the market cap of firm fell to Rs 1.10 lakh crore.
Price band of the IPO was fixed at Rs 2,080-Rs 2,150 per share. The IPO of the Noida-based firm was subscribed 1.89 times on final day.
Brokerage firm Macquarie has a 'underperform' rating on the stock with a target price of Rs 1,200 per share. "Paytm’s valuation, at around 26x FY23E Price to Sales (P/S), is expensive especially when profitability remains elusive for a long time," it said in a note.
What should investors do?
According to Rajesh Agarwal, Head of Research, AUM Capital Market, everyone is looking for listing gains, ignoring lofty valuations. Applications are being made based on the grey market premium (GMP) rather than on fundamentals.
"Paytm's 18,300 crore IPO, country's largest till date, was subscribed 1.89 times. The huge size of the issue was one of the reasons for such low oversubscription numbers followed by the cautious approach of investors due to low GMP," he said.
He added that the company has been making losses – although it has managed to bring down its losses over the years, it would still take some time before the bottom-line turns positive. On valuation parameters at the upper band of the price, the issue was valued at almost 50 times its Revenue.
"Secondly, competition is hot with some established names coming into the market. It would be a tough job to onboard new clients and retain the existing ones," he further added.
"After looking at the overall valuations and earlier losses of Paytm, we advise the investors to book their positions and wait for 1700-1600 levels for fresh investment," Dr. Ravi Singh, Vice President & Head of Research, ShareIndia told BusinessToday.in.
"Retail investors may remain cautious as the overall market is in profit booking zone pushing maximum stocks in downside territory. Paytm’s future growth is a key to watch for long-term investors," he added.
"Paytm saw a weak listing on account of expensive valuations and continues loss in past years. In upcoming quarters the company is expected to post loss as the company strategy is to grow consumer base, merchant base, advanced technology platform and rapidly scale up for other segments," said Akhil Rathi Vice President Advisory at Marwadi Shares and Finance Ltd.
He noted that the company will face tough competition which will impact its market share. Long-term investors should avoid the stock and wait for better prices.
According to Rahul Sharma, Co-Founder, Equity99, "Paytm has corrected almost 25% post listing. It was incidental from the weak response received from the public as the retail portion was subscribed only 1.66 times & NII 0.24 times. Also, It's a loss-making company as it declared a net loss of Rs 4,230 crore, Rs 2,942 crore and Rs 1,701 crore respectively for FY19, FY 20 & FY21.
"Short-term investors might remain in this counter as we might see some pullback but we don`t expect any momentum in long-term so long-term investors may take the exit and wait for declines and check the roadmap of development in the coming days before adding to the portfolios," Sharma added.
“Aggressive investors who got the allotment can hold the stock with a long-term view however the investors who applied for listing gain can exit on the bounceback. New investors are advised to look for other opportunities as new edge companies can perform much better than Paytm,” said Parth Nyati, Founder, Tradingo.
"Existing investors can hold the stock for now but we do not recommend new investors to take positions given the expensive valuations of the company," Kranthi Bathini, equity strategist at WealthMills Securities told BusinessToday.in.
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