In November final yr, certainly one of India’s most distinguished tech entrepreneurs stood on the Bombay Inventory Alternate and cried with pleasure.
I’m “simply overwhelmed,” mentioned Vijay Shekhar Sharma, whereas wiping tears from his eyes. He was addressing an viewers on the itemizing ceremony of One97 Communications, the mum or dad firm of digital funds large Paytm.
Sharma based the corporate almost twenty years in the past. Within the final 5 years, Paytm has turn out to be the darling of India’s booming fintech sector, and is backed by big-name international traders corresponding to SoftBank
(SFTBF) and Warren Buffett. In 2021, One97 raised $2.5 billion within the nation’s greatest ever preliminary public providing (IPO).
Throughout November’s itemizing ceremony, Sharma referred to as the corporate’s function of bringing thousands and thousands of Indians into the mainstream financial system “pious.”
Traders, nonetheless, seem to disagree — Paytm’s inventory crashed 27% on its first day of buying and selling.
4 months later, issues have solely gotten worse. The agency’s inventory is now buying and selling near 560 rupees ($8), greater than 70% beneath its provide worth, in response to knowledge from Refinitiv.
It’s not the one Indian web firm that has soured on the inventory market this yr. Whereas Paytm has been a flop since day one, different Indian tech giants whose debuts have been red-hot compared have additionally plunged in latest months.
Meals supply firm Zomato — the first Indian unicorn to go public — is down over 36% from its first day of buying and selling final July.
E-commerce website Nykaa, whose debut late final yr made its founder India’s wealthiest self-made female billionaire, can also be buying and selling 36% beneath the highs it noticed on itemizing day. On-line insurance coverage market Policybazaar has fallen greater than 40% because it started buying and selling in November.
Whereas expertise shares are suffering globally, the plunge in India is especially painful for traders and corporations who have been hoping for a coming-of-age interval for certainly one of Asia’s fastest-growing startup ecosystems.
As an alternative, it has was an enormous, fats actuality test for tech corporations, with retail traders questioning their enormous valuations. The steep plunge in these shares has additionally possible thwarted IPO plans for different Indian corporations — at the least for the foreseeable future.
“Final yr, there was an IPO frenzy and other people have been prepared to pay the aggressive valuations these corporations demanded,” mentioned Piyush Nagda, head of funding merchandise at Mumbai-based brokerage Prabhudas Lilladher. “However these retail traders have been in search of speedy itemizing day good points.”
“Different traders who received on the bus after the IPO could also be repenting now,” he added.
India’s tech IPO celebration — which began with Zomato final yr — got here to a screeching halt with Paytm’s debut.
Whereas the inventory has trended decrease for many half since its itemizing, March has been significantly tough for the funds firm.
Earlier this month, India’s central financial institution barred the corporate’s banking arm from signing up new prospects. The Reserve Financial institution of India (RBI) additionally directed the financial institution to “appoint an IT audit agency to conduct a complete System Audit of its IT system.”
Paytm launched its Funds Financial institution in 2017 as a three way partnership with Sharma. It will possibly settle for deposits and challenge debit playing cards however can’t lend cash to prospects.
The RBI mentioned it might permit Paytm’s Funds Financial institution so as to add new prospects “after reviewing [the] report of the IT auditors.”
Paytm inventory plunged additional after the RBI’s discover, though the corporate tried to reassure current prospects by informing them that they will proceed utilizing that financial institution’s providers “without interruption.”
“We consider RBI’s path won’t materially impression Paytm’s general enterprise,” an organization spokesperson mentioned in a press release.
However the injury had been carried out. To complicate issues additional, China’s Ant Group and Alibaba
(BABA) personal greater than 30% of Paytm, in response to latest filings, and that funding has become problematic since border clashes in 2020 soured relations between India and China and led New Delhi to ban dozens of Chinese apps.
In a word final week, Macquarie analysts predicted a bleak future for the corporate.
The RBI ban and Paytm’s “Chinese language possession” make it “considerably” tougher for the financial institution now to get a license from the regulators to improve and begin lending, they wrote.
“Given this, and competitors from different fintechs within the funds area, we stay skeptical about Paytm’s longer-term capacity to generate free money stream,” they added, slashing Paytm’s goal worth to Rs 450 ($6).
All this dangerous information for Paytm comes on prime of its lack of clear path to profitability, which has perturbed analysts since its IPO launch. Paytm reported a lack of $104 million for the December quarter.
And it’s not simply Paytm that has did not impress traders with newest earnings.
Zomato — which stays a loss-making firm — had scored large with its IPO in July final yr, however its inventory has fizzled recently, declining over 40% alone because the begin of this yr.
The corporate said Tuesday that it’ll begin a 10-minute meals supply service, however the inventory remained close to its all-time low even after that announcement.
“Enterprise capitalists have the abdomen to digest these numbers,” mentioned Nagda, whereas speaking about lack of income amongst Indian tech giants. “However retail traders react instantly as soon as they see quarterly numbers.”
Zomato has additionally disillusioned traders with its relative lack of transparency, because it holds solely one earnings call a year. Most public corporations do 4 calls a yr, normally after each quarterly end result.
Zomato didn’t reply to a request for remark.
Mihir Vora, senior director and chief funding officer at Max Life Insurance coverage referred to as this second a “actuality test” for India’s cash-guzzling tech corporations, which must take part in additional “common investor communications.”
“The money burn is just too massive,” he mentioned. Markets need to know “the place the subsequent spherical of funding is coming from.”
Paytm’s nosedive, adopted by the battering different tech shares have obtained in India recently, could also be forcing different corporations to rethink their IPO plans.
In October final yr, Softbank-backed resort chain OYO confirmed plans to lift almost $1 billion via its debut. However, in response to a latest Bloomberg report, the corporate is now contemplating “slashing its fundraising goal by half and even shelving the debut.”
“It’s contemplating additionally halving its anticipated valuation from the $12 billion initially focused,” Bloomberg added, citing unnamed sources.
In an electronic mail to CNN Enterprise, OYO “strongly” denied the assertions made within the report. “OYO continues to obtain investor curiosity as we await approval from the regulator,” it added, however declined to reveal any particular particulars.
Paytm’s smaller rival Mobikwik has mentioned it might defer its IPO, initially deliberate for November final yr, by a number of months. The corporate advised CNN Enterprise final yr it might “checklist on the proper time,” with out sharing another particulars.
Regardless of the present turmoil, most international traders say that India stays engaging for them, supplied corporations coming to market are extra life like about their valuations.
“There isn’t any rising market that gives the expansion alternatives that India does,” mentioned Nuno Fernandes, portfolio supervisor of the rising wealth technique at GW&Ok Funding Administration. However he additionally mentioned that he discovered most valuations by Indian tech giants final yr “fully unwarranted” and hopes different startups can be extra cautious now.
“My suggestion to the administration is that it’s higher to be modest and achieve success within the IPO, slightly than have it falter.”