History of Stocks
Paytm, the parent company of One 97 Communications, aimed to raise over ₹18,000 crores ($2.2 billion) through its Initial Public Offering (IPO) in November 2021. Despite being the largest IPO in Indian stock market history, the stock faced a significant decline, more than halving in value from its issue price of ₹2,150. The reasons for the IPO's failure are explored, raising questions about Paytm's valuation, the perception of investors, and the financial state of the company.
Reasons for Paytm IPO Failure:
1. Overvaluation: Paytm's stock faced a sharp decline after its listing, indicating that it might have been overvalued at the issue price. Investors questioned the high valuation of a loss-making company, especially considering its IPO being the largest in Indian history.
2. Loss-Making History: Paytm had been a loss-making startup for several years, with losses increasing in some periods. Despite declining losses in recent years, the company had not yet turned a profit, leading to skepticism among investors about its financial viability.
3. Competitive Market: While Paytm operates in the growing sector of digital payments and fintech in India, competition is intense. Other IPOs, such as Zomato, Nykaa, and PolicyBazaar, generated more investor interest and were oversubscribed multiple times, suggesting that investors found their stories more compelling.
4. Questionable Financials: Paytm's financials, including rising expenses and losses, raised concerns among investors. The company's total expenditure increased significantly in Q3 of FY22, and its losses grew by 64%, further contributing to doubts about its financial health.
5. Low Subscription Rates: Paytm's IPO subscription rates were relatively low, indicating that investor interest was not as strong as expected. The retail portion was barely oversubscribed, and the demand from High Net Worth Individuals (HNIs) was minimal.
6. Market Sentiment: The decline in stock price on the listing day created negative market sentiment around Paytm's IPO. The sharp fall in share price and the subsequent loss in market capitalization led to doubts about the IPO's success.
In conclusion, Paytm's IPO faced challenges due to concerns about its valuation, financial performance, and competition in the market. The lack of strong subscription rates and the subsequent decline in stock price contributed to its failure in the eyes of investors.