Shares of India’s One97 Communications, the owner of Warren Buffett-backed payments platform Paytm, are in freefall.
The company’s share price slumped 14.6% this week after Macquarie revised down its price target and amid concerns over a central bank crackdown on e-wallets.
It has plunged more than 55% since listing on November 22, a $2.46 billion debut that was India’s largest public offering in a blockbuster 2021 for IPOs – and analysts say there may be worse to come.
“Paytm’s share price is yet to see its bottom,” said Chandan Taparia, vice-president of research at Mumbai-based brokerage firm Motilal Oswal. “The company is expected to take at least the next three years to turn around.”
Macquarie Capital Securities, which had set a target of $16.14 (Rs 1,200) on its listing day, further slashed its target price to $12.10 (Rs 900) on January 11, saying it believed its “revenue projections, particularly on the distribution side, are at risk.”
Sonam Srivastva, founder lead analyst at Mumbai-based Wright Research, an equity research boutique, said: “While the IPO came at the wrong time, just when the market was already peaking, Paytm received its biggest blow yet this week when Macquarie Research sounded warning bells about Paytm’s future.”
And analysts cite several other challenges that Paytm faces. The changes announced by the Reserve Bank of India (RBI) in December were a further setback for Paytm and other wallet players, added Srivastva.
RBI governor Shaktikanta Das proposed a slew of regulations for a Unified Payments Interface (UPI) and digital payments on December 8 as part of the Monetary Policy Statement, threatening to severely curtail the business of various digital payments providers like Paytm.
In his statement, the governor did not provide specifics on what steps the central bank will take, other than to say that a discussion paper will be released by the end of January.
However, he did send two important signals – first, charges levied across digital payment modes must be contained, and second, digital payments must continue to be “economically remunerative” to payment service providers.
Srivastava believes that the new regulations will be a serious setback for other e-wallet players and particularly Paytm because “close to two-thirds of Paytm’s gross revenues are still accounted for by its payments app.”
Add to that the recent rejection of Paytm’s foray into insurance by the Insurance Regulatory and Development Authority which “could impact the company’s prospects of getting a banking licence”, according to Macquarie.
Alibaba And SoftBank Among Backers
Paytm shot to fame during a big banknote ban five years ago, following which the super app nabbed a series of big-name backers. As of the middle of last year, its shareholders included Ant Financial (29.6%), Softbank (19.6%), SAIF Partners (18.5%), Alibaba (7.2%) and Warren Buffett’s Berkshire Hathaway (2.8%), according to a Sanford C. Bernstein note. However, while many wealthy individuals and domestic institutions stayed away from the IPO, top global investors like BlackRock, the Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority aggressively subscribed to the offer.
According to some reports, institutional investors contributed more than $1.1bn.
“However, the extent of Paytm’s share price fall since the debut listing has unnerved many anchor investors and some tired ones may be offloading now,” said Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities.
The HDFC Mutual Fund, one of four mutual funds that were anchor investors in Paytm’s IPO, announced in December that it had reduced its holdings in the company by a significant amount across two schemes as a result of the Macquarie downgrade.
Paytm Silent On December Loss
According to Gorakshakar, anchor investors usually have a higher appetite for risks, but they book losses and exit when they do not see profitability on the horizon.
Reacting to the Macquarie downgrade, however, Paytm announced December quarter operational performance numbers that revealed the gross merchandise value processed through the platform during the quarter aggregated to over $33.6 billion, a growth of 123% year-on-year.
Its monthly transacting users rose to an average of 64.4 million or by 37% over the year.
Yet, the company was silent on its December quarter net loss, which shot up to $63 million in the quarter ending September 2021 from $58 million a year earlier.
- By Indrajit Basu