Vijay Shekhar Sharma: Vijay Shekhar Sharma’s obsession with setting Paytm IPO record led to a bad day 1

Vijay Shekhar Sharma wiped away tears of joy as he recounted his rise from a “man of the people” to leader of a digital payments giant who has just completed India’s largest initial public offering.

“The dreams of a young country are with me,” said the founder and managing director of One 97 Communications Ltd., operator of the

service, before hitting the opening gong at the Bombay Stock Exchange on Thursday at 10 a.m. local time.

By 11 a.m., Sharma’s long-awaited night out had become one of the worst opening days for a successful tech roster since the dot-com bubble. The stock’s 27% drop surprised even some pessimists at Paytm, casting doubt on a record run for Indian stocks and leaving Sharma – and her underwriters – to face tough questions about what went wrong. with fundraising of $ 2.5 billion.

The short answer is that Sharma’s grand ambition to make Paytm’s biggest IPO in the country backfired. The founder made no secret of the fact that he wanted his company’s early days to surpass the long-standing IPO record set by Coal India Ltd. in 2010. Indeed, there would be symbolism in a startup that processes payments in bits eclipsing the state. run the mining giant.

Instead, Paytm now looks like a stunning example of overbreadth. The company, with the backing of leading banks such as Morgan Stanley and Goldman Sachs Group Inc., has driven the price and size of the stock offering to breaking point. Retail investors who have crammed into the offer are now sitting on heavy losses, along with global giants like BlackRock Inc. and the Canada Pension Plan Investment Board.

“There was euphoria around IPOs in India, supported by the rise in stocks and people got carried away by it,” said Nikhil Kamath, co-founder of Zerodha Broking Ltd., the biggest house. brokerage of the country. “For Paytm, the track to their profitability is too long and does not justify far-fetched prices.”

Bloomberg

Of course, Sharma sees it differently.

“I have never felt so excited, optimistic and enthusiastic about the future,” the 43-year-old said in an interview as Paytm’s shares sank on Thursday. The slump is “no indicator of the value of our business.”

Indeed, the company he launched with a loan of $ 100,000 two decades ago now has billions of dollars in cash to fund his ambitions to serve a billion customers in one of the most promising markets. in the world. Sharma, who owns 12% of the company after selling shares in the IPO, has a net worth of $ 2.5 billion, according to the Bloomberg Billionaires Index.

“We’re here for the long haul,” Sharma said. “We’re going to put our heads down and run. ”

Rocky IPOs aren’t always indicators of the future. Facebook, recently renamed Meta Platforms Inc., lost more than half of its value in the months following its listing in 2012 in New York City. IPO investors who have stayed with the company are now sitting on gains of nearly 800%.

Sharma’s personal journey has been aligned with the rise of mobile internet and the shift from multifunction phones to smartphones. Son of a schoolteacher, he grew up in a town of Aligarh, in central India, and studied engineering in New Delhi, where he learned English on his own by listening to rock music. and reading textbooks with their translations into Hindi.

He founded One 97 in 2000 as a text paging service – 197 is India’s hotline for telephone inquiries. The company quickly began delivering cricket scores, Bollywood news, and SMS horoscopes to cell phones.

Paytm, whose name rhymes with ATM and is a shorthand for Pay Through Mobile, started in 2011 primarily to help users add credit to their prepaid phones before they started operating a digital wallet service in 2014. Its service for payment really took off in 2016, when the Indian government invalidated most of the country’s banknotes in an attempt to eliminate illegal transactions.

Today, Paytm has 337 million users who depend on it for financial and e-commerce transactions. It provides digital lending, insurance, wealth management and stock exchange services in a country with an underdeveloped banking network. Earlier this week, the company started offering voice trading, leveraging artificial intelligence to allow users to buy and sell stocks with voice commands.

“India is the biggest and best FinTech opportunity in the world,” Sharma said in a pre-listing interview. “If 2010 was the start of a historic decade for Chinese entrepreneurs building global tech companies, 2021 will be the start of a similar decade for Indian tech startups. ”

Critics have questioned Paytm’s ability to deliver on such promises even before the final IPO price. While sales in its core payments and financial services arm grew 11% in the fiscal year ended in March, overall revenues fell 10% amid intensifying competition, the company reported. company in July.

Paytm appears to run on “hyperbolic forecasts from its founder and management” that are a factor of three or four, Aswath Damodaran, a finance professor at New York University’s Stern School of Business, wrote on BloombergQuint this week. this month. “The access to capital of its big-pocket investors, especially Alibaba, appears to have made this company flippant about its business model and profitability, even by the standards of young tech companies.”

Alibaba Group Holding Ltd. and its subsidiary Ant Group Co. were among the first investors in One 97, along with Japan’s SoftBank Group Corp.

Paytm and its backers then stretched its valuation during the IPO process, underestimating the importance of solid demand from individuals and institutions, according to bankers familiar with the matter. The share price was Rs 2,150 a piece, at the top of its range. In an early sign of trouble, the IPO was not fully underwritten in the first few days the shares were offered – a rarity for trading in scorching India.

Paytm did not leave enough money on the table to entice investors to buy, a lesson for the future, one of the deal’s bankers said, asking not to be named as details are private . Now, Paytm will face a quarterly trip to prove its outlook to investors and is expected to aim to become profitable within the next 12-18 months, the banker said.

Underwriters Morgan Stanley, Axis Capital Holdings Ltd. and HDFC Bank Ltd. did not immediately respond to emails seeking comment. Goldman Sachs, JPMorgan Chase & Co., Citigroup Inc. and ICICI Securities Ltd. declined to comment.

Indians have taken to social media to express their frustration – and their schadenfreude. A four-photo montage used repeatedly showed a man going from euphoria to despair with the words: “When you get the IPO after a long time, but it’s Paytm ..”

There is some skepticism that Paytm can recover quickly. Prior to listing, Macquarie Capital Securities (India) Pvt. Ltd. released a report, initiating a hedge on the company with an “underperformance” rating and a target price of 1,200 rupees, or 44% below the issue price. He called Paytm a “money-burning machine” and its payments business a “lead product.”

Paytm Heads For Worst Indian Debut Ever: ECM Watch

“Given Paytm’s cash-intensive business model, lack of a clear path to profitability, significant regulatory risks to the business, and questionable corporate governance, we believe the company is overvalued. at the high end of the Rs 2,150 price range, ”analysts Suresh Ganapathy and Param Subramanian wrote in the note.

The challenge for the company will be to build the scale with profitability. According to Macquarie, distributing consumer loans and loans, at best, only represents an opportunity of about $ 350 million.

“Paytm has to lend, that is, use its own balance sheet to make loans and do so profitably for which it needs a banking license, credit underwriting experience and infrastructure recovery, all of which are currently lacking, ”the note said.

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