Paytm Lists At A Discount—What Should Investors Do? Here's What Analysts Suggest
One97 Communications Ltd.’s listing at a discount to its initial public offer price on market debut was in line with expectations as the Patym's parent is yet to turn profitable and trades at a lofty valuation, according to analysts.
The company’s huge customer base, strong brand positioning and early-mover advantage in digital payment services will help in the medium to long term, analysts told BloombergQuint.
Shares of One97 Communications listed at Rs 1,955 apiece, a 9% discount to its IPO price of Rs 2,150. Its maiden offer, India’s largest-ever, witnessed lukewarm demand.
Prior to the listing, Macquarie initiated coverage on Paytm with its lowest ‘underperform’ rating and a price target of Rs 1,200 apiece, implying a potential downside of more than 40% than the IPO price.
Here’s what analysts told BloombergQuint about Paytm’s listing:
Deven Choksey, Managing Director, KRChoksey
Paytm's discount listing doesn't come as a surprise. The fact that the company is losing Rs 1,600 crore a year is definitely alarming.
It's not showing any signs of profitability. The market has given a clear verdict that such a company cannot sustain at a premium valuation.
The strength of technology that Paytm has, if deployed meaningfully by plugging it in with 'fin' (of fintech), could really make a difference. There are many banks that have the 'fin' but don't have the 'tech'. If those banks connect with the likes of Paytm, it could give birth to a 'win-win' business model.
Vikas Jain, Senior Research Analyst, Reliance Securities
Paytm witnessed a very poor listing as expected and has broken key critical levels. Subscription figures were not great.
Paytm is expected to remain under pressure in the very near term.
Expect Paytm to do well in the medium to long term as it has a first-mover advantage in the wallet business.
Certain businesses in which the company entered rather late have led to some cash burn.
Investing with a long-term perspective could be beneficial but it is advisable for investors to exit if they are looking for near-term gains.
Expect the company's brand value and early-mover advantage to eventually work in its favour.
Narendra Solanki, Head Of Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers
Post-listing, long-term investors could continue to remain invested in the company.
Since near-term valuation was rich, we had long-term subscribe rating for the IPO.
Given that the company's ecosystem allows it to address large market opportunities, scale and reach, product, technology and leadership, Paytm benefits from both customer-side and merchant-side by providing payment and other services through its apps.
Tanushree Banerjee, Co-Head-Research, Equitymaster
Paytm is one of the best plays on India's fintech potential.
The company's massive reach and multiple revenue streams do make the business model alluring for long-term investors.
However, one must watch out for the health of profit margins and corporate governance practices at the company and its multiple subsidiaries.
Parth Nyati, Founder, Tradingo
Paytm's discounted listing was in line with our estimates.
The company has been unprofitable and there is no sign it will turn profitable in the near future.
Aggressive investors who got the allotment can hold the stock with a long-term view. However, the investors who applied for listing gain can exit on a bounce-back.
New investors are advised to look for opportunities where other new-age companies can perform much better than Paytm.
Due to the brand, the company sought high valuation and it might see a correction in the near term.
Santosh Meena, Head Of Research, Swastika Investmart
Those who played for listing gains should keep a stop loss below Rs 1,720, or 20% lower than the issue price.
Paytm debuted on a weaker note as compared to our expectations of a flat listing.
Suggests only aggressive investors to hold this stock for the long term amid uncertainty.
Bajaj Finserv Ltd. is a much better option to play on fintech businesses., with a proven track record and great comfort of valuations compared to Paytm.
Paytm has a huge customer base with strong brand positioning and it has an early-mover advantage in digital payments. However, it is still unprofitable and very aggressively priced. Therefore, we saw tepid response in terms of subscriptions.
It is difficult to value such kind of companies for the time being, but the markets will focus on how fast it will become profitable and how well it will use its strength to explore new businesses like credit cards and payment banking.
Astha Jain, Senior Research Analyst, Hem Securities
If investors want to take the risk of wanting to hold Paytm, they have to stick to the stock for minimum one year.
Recommend investors who are risk-averse and do not want to hold the stock for long term to book losses and exit right now.
Competition in payments space is gradually increasing with increasing number of players
Paytm's business model is no longer unique as other players have tapped into the model.
Payments industry has strong growth prospects, but low entry barriers has resulted in high competition.
Relationship with merchants very critical for the success of every platform and it represents a major risk.
UPI is not a threat to companies like Paytm, but just a part of the ecosystem
Payments space likely to witness the entry of banks as the fintech transformation gathers momentum.