Paytm shares slipped 2.8 per cent from their previous close to an all-time low of ₹732.35 on BSE. At this level, the stock was down 66 per cent from its issue price of ₹2,150.
4 top reasons for the decline in Paytm’s share price
The ₹18,300 crore initial public offering of One 97 Communications, the parent company of fintech major Paytm, was the largest so far in India, but it was also among the most disappointing public issues of last year. The stock is listed with a discount of 9 per cent at ₹1,955 as against its issue price of ₹2,150.
Since its IPO, Paytm's market value has dropped by 65%. When it went public for the first time, the firm was valued at ₹1.39 trillion (IPO). Its market cap slipped below ₹50,000 crore to ₹47,660.04 crore.
Vijay Shekhar Sharma, the founder of Paytm, suggested at the India Digital Summit that the firm should be measured against Bajaj Finance, a non-banking financial services provider.
“This quarter we are talking about $100 million revenue from payments, which is sizable revenue People underestimate the size of payments revenue,” Sharma, the Paytm CEO, said on ETNow television channel. “Credit is the most monetisable financial service. Bajaj Finance has been there for 30-32 years, Paytm processes more loans than Bajaj today, in less than three years”
Sharma didn't specify the time period in issue, but according to the most recent figures, Paytm was outpaced by Bajaj Finance with 4.4 million loans disbursed in the December quarter. Bajaj Finance recorded 7.4 million loans.
Paytm is struggling to convince investors and analysts alike of the potential for the digital payment giant’s business model. Losses widened to 4.74 billion rupees ($63 million) in the July-to-September quarter from a year ago amid rising expenses. The plunge in its shares amid a global equity selloff has also cast a shadow over the prospects for technology firms preparing to go public in the Indian market. More than 40% of firms that sold shares for the first time in India last year are underwater.
Here are the top reasons for the decline in Paytm’s share price
The Reserve Bank of India (RBI) has suggested digital payments rules that might curb wallet costs. According to analysts, this sector accounts for 70% of Paytm's income, and new limitations might have a substantial impact.
The company planned to start an insurance business, but the Insurance Regulatory and Development Authority rejected its proposal, potentially jeopardizing its chances of acquiring a banking license.
Currently, one has to pay a charge of about 2-2.5% for executing digital transactions through credit cards, debit cards and wallets.
In relation to this, RBI is studying the charges levied on digital payments and may cut down these charges, which will have an adverse effect on payment service providers like Paytm.
Resignations by top management
Paytm announced the resignation of three top executives.
They were Abhishek Arun, Paytm Payments Bank's COO; Renu Satti, offline payments COO; and Abhishek Gupta, Paytm Payments Bank's senior vice-president and COO.
Five prominent Paytm executives had quit before the IPO. Amit Nayyar, Paytm's president, Rohit Thakur, the company's chief human resources official, and three other vice presidents had resigned.
Another source of concern for the corporation is senior management attrition. Senior executives have been leaving Paytm, which is concerning and might have an impact on the company if the present pace of attrition continues.
Federal Reserve's signals have had an impact.
The value of new-age tech companies throughout the world has been hurt by recent hints that the US Federal Reserve may hike interest rates sooner than predicted.
The Fed's tightening and increased tapering are clearly affecting high valuations. The most significant impact has been felt by some of the new age, new tech enterprises in the United States and India.
During their IPOs, several new-age firms wanted a price-to-sales valuation of 40-70 times! Exorbitant values in some parts of the market are anticipated to fall as major central banks across the world embark on a rate hiking cycle.
Paytm wanted a 47x price to sales at its IPO. A premium value was sought despite strong competition in each of its business divisions and a lack of market leadership in any of them.
Analysts are concerned that long-term profitability may be difficult to attain. According to analysts, most fin-tech companies trade at a price-to-sales growth ratio of 0.3x-0.5x globally.
The IPO generated roughly Rs18,200 crore, making it the second-largest after Coal India's initial public offering in 2010.