NEW DELHI: Though there is unbridled excitement over Rs 18,300 crore initial public offer (IPO) of One 97 Communications, Paytm’s parent company, initial reviews are mostly negative, saying the issue is more like a “speculative than a prudent investment bet.”
Of the three analyst reviews received so far, two suggest it is better to avoid applying for the issue. One of them suggests ‘subscribing’ as he sees Paytm’s leadership position in an expanding market crucial for future growth. Mind you, the consensus opinion may change as more reviews pour in.
“Considering the trailing twelve month (TTM) sales of Rs 3,142 crore on post issue basis, the company is going to list at a market cap/sales of 44.36 with a market cap of Rs 1,39,379 crore. We assign ‘avoid’ rating to this IPO as valuations are demanding for a loss-making company,” said Saurabh Joshi, analyst at Marwadi Shares and Finance.
This is despite the company having priced its issue in the range of Rs 2,080-2,150, which is much lower than what was earlier speculated. At the current prices, it is aiming at a valuation of $19.5-20 billion, in-line with anchor investor demand but nearly two-thirds of what the grey market was valuing the firm a month back.
Apart from high valuation, the biggest bone of contention is that it is yet to deliver a profit despite being in the business for over two decades.
“While it’s unfashionable to talk of profits in tech companies, especially the ones about to hit the markets, even on growth parameters, a lot is left to be desired. In FY21, the year of the pandemic, when use of digital wallet and mobile payments surged, the company posted a decline in the revenues,” said Richa Agarwal,Senior Research Analyst at Equitymaster.
“Despite a 60 per cent cut in marketing and promotional expenses, the losses continued and the road to profitability is unclear. While it’s highly likely to be a successful IPO, from a long term perspective, this seems more like a speculative than a prudent investment bet,” she added.
The IPO consists of an offer for sale of Rs 10,000 crore and fresh issue of Rs 8,300 crore, making it the biggest ever issue. It opens for public subscription on Monday and runs through Wednesday. Investors willing to subscribe to the issue, can bid for a minimum six shares and in multiples thereof. Of the total shares on offer, 75 per cent is reserved for institutional investors, 15 per cent for HNIs and the rest for retail applicants.
To be fair, it seems not everyone is negative about a company’s ability to make money. Paytm has already raised Rs 8,235 crore from anchor investors. Top sovereign wealth funds and financial investors such as Singapore’s GIC, Canada’s CPPIB, BlackRock, Alkeon Capital, Abu Dhabi Investment Authority are among those 122 names that have picked up stakes in the fintech major. This includes four domestic mutual funds–HDFC, Aditya Birla, Mirae Asset and BNP Paribas — that took nearly 13 per cent of total anchor allotment.
Perhaps they see what Jyoti Roy, DVP- Equity Strategist of Angel One, sees in the company. He recommends investors to subscribe to the issue, and not worry about valuations.
“While valuations may appear to be expensive, Paytm has become synonymous with digital payments through mobile and is the market leader in the mobile payment space. Patym is well positioned to benefit from the exponential 5x growth in mobile payments between FY21–26 and hence believe that the valuations are justified,” he said.
A month back, Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University, had pegged Paytm’s fair value at Rs 2,190.24 per share, which is close to the IPO price band.
However, he had added that “this cannot be a passive (buy-and-hold) investment, but one that will require active engagement and monitoring of the company’s actions and performance.”
