PayTM share price drop – Factors that led to it

The recent pandemic has seen many new investors and traders entering the market. This has also been the time when the market has seen many new IPOs as well as startups that have gained unicorn status. One of the prime names in this race is PayTM. 

PayTM was one of the first fintech platforms in India and also gained huge popularity, especially during the demonetization days when most transactions were done digitally. This trend has continued and today online platforms like PayTM, GPAY, etc, have become the number one choice to make payments by a majority of citizens. This growing importance of PayTM had given it a huge boost and peeked the interest of investors at the time of its IPO. However, this is now history and today the share prices of PayTM are on a downward trend. 

Discussed below are a few factors that may have contributed to such a downfall. 

Current market value of PayTM

PayTM was launched in 2010 and its parent company is One97 Communications. After creating a lot of buzz, the PayTm IPO was launched in November 2021. The price band for the IPO was between Rs. 2,080 – Rs. 2,150. The IPO was oversubscribed 1.89 times and is considered to be one of the biggest share sales in the country. The valuation of the company at that time was to the tune of Rs. 1.39 lakh crores. 

Today however the share prices of PayTM have fallen considerably after listing at a discount of 27% from its issue price. This downfall has seen the investor’s wealth to the extent of Rs. 1 lakh crore and today the valuation of the business is approximately around Rs. 35,500 crores. This extreme downfall has seen the share price of the company drop 75% from its IPO allotment price. The shares of the company are currently traded at Rs. 533.20 per share and experts believe the share will see a further downfall. 

Factors that led to the downfall in PayTM share prices

There are many factors that seem to have contributed to such a steep downfall in the share price of this once unicorn of the Indian markets. Some of such factors are discussed below. 

1. Overvaluation

The stock of PayTM was valued at an extremely high level at the time of its IPO. The valuation was on the basis of approximately 47 times its price to sales growth ratio. According to most experts, the average level of valuation for fintech companies across the globe is approximately around 0.5 times its price to sales growth ratio. This extreme difference definitely called for a correction and is being currently witnessed in the market. 

2. Revised RBI norms

RBI in its revised norms has proposed that it will be introducing new digital payments regulations. These regulations include limits on wallet charges. This will greatly impact the revenue of PayTM as approximately 70% of its revenue is from this segment. The market has reacted in anticipation of such a fall in the revenues of the company with a sharp decline in its share prices.

3.Senior management attrition

Another major reason for the market sentiment not being in favour of PayTM is its senior management attrition. Many key officials of the company like Abhishek Gupta, (Senior Vice-President and COO) Renu Satti (COO, Offline Payments), and Abhishek Arun (Chief Operating Officer (COO) of Paytm Payments Bank) including five other top executives have resigned from the company. This senior management erosion from the company is viewed negatively by the markets and is expected to have a detrimental impact on the business further having an adverse effect on the share prices.

4.Continuous losses without prospects of profits

The company has seen continuous losses since its launch and also there are no clear prospects of making profits. The fierce competition in the fintech segment further reduces the prospects of profits. The financials of the company have been in the red showing the basic fundamentals of the company do not support profitability. This is one of the major driving points of the decreasing investor confidence in the former unicorn. 

5.Recent RBI restriction

The recent blow to the share price of PayTM was due to the RBI direction which restricts the PayTM Payments Bank from onboarding new customers on account of ‘material supervisory concerns’. This is after it came to light that PayTM has been sharing data with servers that share information with China-based entities. 

These entities indirectly own a stake in the PayTM Payments Bank. The apex bank has directed PayTM Payments Bank to initiate a comprehensive system audit of its IT system by appointing a competent IT audit firm. Although these allegations are denied by One97 communications, the damage had been done. The shares dipped a steep 12% following this news and are still on the downtrend. This ban will also damage their chances of upgrading to a small finance bank. 

Conclusion

PayTM IPO is the biggest IPO in the corporate history of the country. However, the stock has seen a continuous downfall since its listing day with no clear prospects of profitability and increasing the investor’s confidence. The share price of the company is trading at its all-time low and may reach further low levels according to many market experts.

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