What’s the reason? Paytm shares are now at their lowest level since the IPO in November. Insufficient clarity regarding the business’s model the growing competition, and the latest RBI order prohibiting the addition of new customers to its payments bank have hit the company with a hammer.
Paytm CEO and founder Vijay Shekhar Sharma with President and Group CFO Madhur Deora at the Bombay Stock Exchange in Mumbai on November. 18th, 2021. Photograph by Shashank Paradeand PTI
The situation appears to be all right things seem to be going smoothly for Vijay Shekhar Sharma, founder and CEO of the financial technology startup Paytm. After the failure to list his company’s shares in stock exchanges, whose share prices have traded well lower than their quoted price More negative news has been announced an order issued by the Reserve Bank of India (RBI). Paytm On March 12 announced that the RBI had barred Paytm Payments Bank of “onboarding” prospective customers until an extensive review of its information technology system is completed.
The shares from One97 Communications, the parent company of Paytm, dropped 12.84 percent in the BSE on March 14 and sank to the price of 675.35. In a letter to Exchanges, One97 Communications stated that the RBI “has identified a number of significant issues with supervision regarding Paytm Payments Bank. The bank has taken immediate steps to conform to RBI directives, including the hiring a highly respected outside auditor who will conduct a thorough inspection of their IT technology”. The bank also stated that the ban on onboarding new customers is not affecting the existing clients from Paytm Payments Bank. According to reports in the media, Paytm Payments Bank has accounts with 58 million customers. Additionally, it owns 300 million mobile wallets.
“All current users of Paytm UPI, Paytm Wallet and Paytm’s FASTag as well as bank accounts are able to make use of these tools which include debit cards as well as net banking for transactions,” the company said. These new developments have put an obstacle in the expansion of Paytm which has been a target of the fury of investors since its debut on the bourses back in November due to a the lack of clarity about the business model it follows.
On the 18th of November, when The shares from One97 Communications got listed, they dropped 27 percent which was the largest drop on the day of their initial listing for shares that were sold at more than 1,000 crore. The shares were listed at 1,950 rupees at a price that was 9.3 percent from the offer price of 2,150. The stock ended the day at Rs 1,564, reports suggest that it caused losses of 5,000 crores to investors. Since then shares have been declining. The market capitalization of the company fell below the one lakh crore mark when it was listed to 88,184.67 crore on the 22nd of November according to expectations from the market of Rs 140,000 crore at the date of listing. One97 Communications shares dropped by an additional 7.95 percent on March 15 to just Rs 621.65 in intra-day trading. The company’s market capitalisation was approximately 40,325 crore as of March 15.
What is the reason investors are leaving Paytm? Some analysts claim Paytm holds its hands in a lot of pie-cutter’s pies, and there are numerous moving parts, so it’s difficult to pinpoint the specific business model of the company in the present. There is also a growing competition within each of the markets that it operates in. “There isn’t any certainty about what the business model of the firm will be, what are going to be the main growth factors and what the path to profitability will be. As long as we don’t have an understanding of the company, the share price will be fixed,” Dipan Mehta, director at Elixir Equities, said in an interview on TV.
This is also a sign of some of the bigger problems with start-ups in the tech sector which market experts have warned about. On the stock market startups are valued based on the extent to which they dominate the market they operate in, the amount of capital they can access and their ability to exhaust capital and continually increase market shares. The public markets will also require transparency on when the companies will reach even and earn a profits. There’s already a lot of competition in the payment space which Paytm has a presence in. In addition, the federal government’s UPI has stripped Paytm from its advantage as the first mover. Brokerage firm Macquarie has previously doubted the valuation of Paytm, declared on the 22nd of November that it would keep its previous estimate of Rs. 1,200 for the company and an underperform rating.
“Paytm’s valuation is high particularly since profitability will be difficult to achieve for a long period of time,” it said. Although the pressures are growing on the part of Paytm, its investors are continuing to lose the hard-earned cash that they’ve put into the company. The confidence of start-ups is also beginning to wane and this is not bountiful for other startups that are awaiting public listings. A few of them have delayed their debuts to the public, and are now preparing to revise targets for valuations.