It’s turning into a monumental year for India’s stock market, as yet another big startup makes its public debut.
But Paytm, which started trading in Mumbai on Thursday, spoiled the party: Its shares opened below the 2,150 rupees ($28.60) issue price, before closing down 27% at 1,564 rupees ($21).
The flop reflects fears about Paytm’s business. The company, which is now worth almost $14 billion, lost hundreds of millions of dollars last year and seems far from ready to turn a profit. It’s also up against growing competition from some of the biggest tech firms in the world.
The digital payments company raised 183 billion rupees ($2.5 billion) in its initial public offering. It’s the largest ever in the country when measured in local currency, surpassing Coal India’s in 2010. That IPO was worth 155 billion rupees ($3.48 billion), according to data from Refinitiv.
“The outcome of the IPO was not in doubt,” Madhur Deora, the president and group CFO of Paytm, told CNN Business last week. The former investment banker has been with the company for five years.
But the amount of attention it drew took him by surprise.
With backing from investors such as Warren Buffett, Masayoshi Son and Alibaba (BABA), Paytm is one of India’s best funded startups. Its public debut has been keenly watched by professional and amateur investors alike.
India has been churning out billion-dollar startups for years, but the rush for those unicorns to go public started only a few months ago.
“A lot of well-wishers and friends messaged [me], saying, ‘Oh, I’m getting a prayer done at Golden Temple for Paytm’s success,” said Deora, referring to the central place of worship of the Sikh religion.
They weren’t alone. Paytm’s founder, Vijay Shekhar Sharma, went to “seek blessing of God” at the Tirupati Temple, one of India’s most famous places of worship, on November 8 — the day Paytm launched its IPO.
That day also marked five years since Prime Minister Narendra Modi banned two of the country’s biggest currency notes. The move was hugely disruptive for the economy, but it helped Paytm grow at an explosive rate: The company signed 10 million new users within a month. It made us “a folklore name in this country,” Shekhar told CNN Business in 2019.
Thanks to the momentum provided by the cash ban, Paytm is now the biggest payments platform in one of the world’s fastest growing economies. It has 337 million registered consumers and 22 million merchants, according to its IPO filing.
At the listing ceremony on Thursday, an emotional Sharma called the company’s purpose of bringing millions of Indians into the mainstream economy “pious.”
Foreign investors have been enthusiastic. The company raised $1.1 billion from BlackRock and the Canada Pension Plan Investment Board just before the IPO opened, according to an exchange filing. And on the day of the launch earlier this month, Softbank (SFTBF) founder and existing Paytm investor Son declared that,”for us, their IPO should be a great event.”
However, the response in India has been different.
While Paytm’s IPO was eventually fully subscribed, much of the local media coverage has been lukewarm, highlighting that the company took longer to find buyers for its shares than two other Indian startups in recent months, food delivery company Zomato and e-commerce firm Nykaa.
“I think the real story here is that someone aimed to do something that had not been attempted before and many thought could not be done in the Indian capital markets,” Deora said, in reference to the challenge of launching such a large IPO before the company has turned a profit.
Paytm’s losses have analysts worried about whether the company can justify its valuation. The company, based in the New Delhi suburb of Noida, posted a loss of 17 billion rupees ($230 million) last year on revenue of 31.86 billion rupees ($430 million). Profits aren’t on the horizon any time soon.
“We expect to continue to incur net losses for the foreseeable future and we may not achieve profitability in the future,” it said in its IPO filings, adding that the company will continue to spend heavily on hiring, marketing and building infrastructure.
“Two years ago, we were in this super high investment phase where we were creating a lot of consumer and merchant traction on the platform,” Deora said. “We have found that it is easier — much easier — than two years ago to acquire and retain customers, hence, we are spending a lot less.”
Having said that, he added, “our aim is to reach 500 million Indians … So we would continue to spend on marketing.”
As the cost of data and internet in India falls, its population of 1.3 billion is coming online at a rapid pace. Paytm expects the number of smartphone users in India to hit 800 million in the next five years, giving a significant boost to its business.
Next phase of growth
Skeptics have pointed to mounting competition, particularly as Facebook (FB) and Google (GOOGL) have joined the fray by launching their own mobile payments systems that make use of the Unified Payments Interface (UPI), an Indian government-backed technology.
Deora said he is not worried, as UPI-based payments make just one “chunk” of Paytm’s business, which has now expanded into commerce, lending and other sectors.
While financial services are a relatively new part of the company’s business, Deora said he is excited about the opportunity to be “democratic” with lending, and reach everyone from the self-employed to the daily-wage laborer. The company plans on strengthening this business with the money it has raised.
“A vast majority of Indians do not have access to formal credit …. They just don’t have a credit history,” he said. “So there’s a lot of what we call [India’s] underserved or unserved.”
“There’s a huge market in providing access to credit,” he added. Paytm has partnered with banks — including the country’s largest private lender, HDFC — to provide services ranging from personal loans to buy now, pay later options.
“Pay later really suits the needs of younger millennials in the country, because many of them just find the process of getting credit anywhere else not suitable for them,” Deora said.