Paytm Stock Crash – What went wrong with Paytm IPO?

A night before its listing, Paytm’s official Twitter handle tweeted – “exam se ek raat pehle wali feeling”, which translates to “the feeling you get a night before the exam”. On November 18, Thursday, the very next day, Mr. Vijay Sharma hit the bell at Bombay Stock Exchange at 10 AM to initiate the listing of Paytm shares. 

So, with its discounted listing followed by a crash, will One97 Communications Limited be considered a failure on its IPO exam? Let us try to look at some important data points that came up after its listing and grasp some insights about what exactly happened that led to Paytm shares crash.

Summary of its First Trading Session

The open, close, high, and low prices of Paytm shares on its first trading session on both the stock exchanges are showcased in the tabular form below.

Particulars	NSE	BSE
Open Price	INR 1950	INR 1951
Highest Price	INR 1955	INR 1961
Low Price	INR 1560	INR 1564
Close Price	INR 1560.80	INR 1564.15

 

• The Paytm stock crash, followed by its discounted opening, left many investors baffled as the prices dipped further by around 5% in the first minute itself.

In Comparison With Other Popular IPOs

The following table shows a comparative analysis of the market capitalisation of some recently launched popular IPOs of 2021.

Companies	Market Capitalization
Zomato	INR 1.21 Lakh Crore
Nykaa	INR 1 Lakh Crore
Paytm	INR 1.01 Lakh Crore

 

• Zomato was issued at INR 76 and listed at INR 116, giving over 52% listing gain, whereas Nykaa was issued at INR 1125 and listed at INR 2018, giving investors a gain of around 80%.
• Paytm IPO price was INR 2150, whereas it was listed at INR 1950 with a listing loss of around 9%.

Further Key Takeaways

• Macquarie Research initiated coverage with an Underperform rating on the digital platform Paytm, citing its lack of direction and focus on profitability.
• Many industry experts and rating agencies have shown a pessimistic view regarding Paytm’s ability to start making profits. The cycle of waiting for quarterly results and then up move in prices owing to good performance could help the price move over its issue price.
• With over 337 million users, Paytm is India’s largest digital financial firm. It offers a variety of products and services to its users. But they seem to have made its business model and profitability look casual despite its massive funding.
• Twenty years after Mr. Sharma started his company with a loan of  $100,000, his wealth has grown significantly as the company has raised over $2.5 billion in funding.
• Instead of being a symbol of robust growth, Paytm now looks like a case of stunning overreach. Its IPO, which was backed by some of the world’s biggest banks, pushed up the price and the size of the offering.
• The bull run in stocks has largely supported IPOs in India, but valuations are too high for many companies. Many retail investors just got carried away believing this offering will give them listing gains but are now stuck with a significant drawdown due to the Paytm IPO price crash.