India’s Paytm drops another 14% after failed IPO on day one

(Bloomberg) — Shares of India’s leading digital payments company Paytm tumbled for a second day after its $2.5 billion initial public offering, marking one of the worst-ever appearances for a major technology company.

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The stock fell about 14 percent on Monday, after a 27 percent drop in its debut on Thursday, reducing its market value to about $ 12 billion. The decline affected individual investors and global institutions such as BlackRock Inc. and the Canada Pension Plan Investment Board, which raised shares.

Paytm’s parent company, One 97 Communications Ltd, raised a record sum for India’s initial public offering, but its disastrous commercial debut drew criticism from the company and its investment bankers pressed hard for the offer. Founder and CEO Vijay Shekhar Sharma has consistently made it clear that he wants Paytm to surpass the IPO record set by Coal India Ltd. In 2010. Indian markets are closed on Fridays for a holiday.

Mohit Nigam, fund manager at Hem Securities Ltd. “Investors should wait a bit for the stock to stabilize. There is a great deal of volatility and pessimism in the stock.”

Over the weekend, Paytm released the financial details for the month of October, which includes the critical period before the Diwali holiday. The company said the total value of merchandise rose 131% to 832 billion rupees ($11.2 billion) in the month. Loan payments, which analysts see as the key to Paytm’s profit turning, increased more than 400% to Rs 6.27 billion.

A stumble by India’s largest digital payments provider may cool the boom of India’s stock market, which has been among the world’s most frantic. The IPO has been promoted by some as a symbol of the country’s growing attractiveness as a destination for global capital, particularly for investors looking for alternatives to China.

Paytm’s IPO has been managed by leading banks, including Morgan Stanley and Goldman Sachs Group Inc. and JPMorgan Chase & Co. and ICICI Securities Ltd. and Axis Capital Holdings Ltd.

Critics have questioned Paytm’s prospects in recent months. The company reported in July that while sales in its core payments and financial services arm rose 11% in the year to March, total revenue fell 10% amid fierce competition.

Even before trading commenced, Macquarie Capital Securities (India) Pvt. The limited company was described with an initial rating of “underperforming” and a target price of Rs 1,200, 44% below the IPO price.

“Given Paytm’s hugely money-burning business model, no clear path to profitability, significant business regulatory risks and questionable corporate governance, we believe the company is overvalued at the upper end of the Rs 2,150 price range,” according to analysts Suresh Ganapathi and Param wrote. Subramanian in the note.

Others see Paytm’s model as promising if it builds on its growing customer base.

“Paytm is a technology strong company, but they need to expand on the financial side of the fintech business,” said Deven Choksey, strategic analyst at KRChoksey Investment Managers Pvt. “Just focusing on technology will not work.”

CEO Sharma defended the company’s prospects. He rallied staff during a four-hour town hall and encouraged them to get through the drop-off period on day one, according to staff who participated.

Sharma recalled Elon Musk and Tesla Inc. , reminding employees that the electric-car maker’s inventory was among the world’s most deficient. But he said the company had overcome years of struggle to become one of the world’s most recognized brands.

The decline “is not an indication of the value of our company,” the 43-year-old said in an interview with Bloomberg News on Thursday. “We are in it for the long haul. We are going to screw our heads and get it done.”

(Updates with market assessment in second paragraph)

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