Skies darken for Indian IPOs after Paytm's diappointing debut

JM Financial

19/11/2021 11:39

By Abhirup Roy, Scott Murdoch and Anshuman Daga
    MUMBAI, Nov 19 (Reuters) - Paytm's  PAYT.NS  dismal stock
market debut this week is likely to put a damper on future
offerings after the IPO of the digital payments firm ranked
among the worst-performing in Indian history, six analysts and
bankers said on Friday. 
    Indian companies have raised a staggering $9.7 billion
through initial share sales in the first nine months of 2021,
for the highest such tally in any of the corresponding periods
of the last two decades, said accountants EY. 
    But offerings planned for later this year, such as those by
payments rival MobiKwik and hotel aggregator OYO, will face
questions after Paytm's debut plunge of more than 27%, as
investors turned queasy at its lack of profits and lofty value.
 urn:newsml:reuters.com:*:nL1N2S906S
    "This episode should hopefully bring some realism to
valuations that promoters expect from the public markets," said
Kristy Fong, a senior investment director at fund manager abrdn,
based in Singapore.
    Investors and analysts who expressed concern over the IPO
valuation of the loss-making Paytm at about $18.7 billion had
cautioned that "frothy" valuations with unclear business models
might not end up well in the current market.
    "It will take three to four months for people to forget
Paytm and that it destroyed wealth," said Jimeet Modi, founder
of Mumbai-based brokerage Samco Securities.
    "Until that time, it's going to be tough for all
super-expensive IPOs."
    But the debut of Paytm, which is backed by Ant Group and
SoftBank, was in stark contrast to that of food delivery firm
Zomato  ZOMT.NZ , which surged 66% in July after raising $1.2
billion.  urn:newsml:reuters.com:*:nL4N2OZ0LD
    Similarly, shares in FSN E-Commerce  FSNE.NS , which owns
cosmetics-to-fashion platform Nykaa, jumped 80% on their debut
this month.  urn:newsml:reuters.com:*:nL4N2S114G
    Now analysts fear that even approaching IPOs which have seen
huge demand may take a beating on listing.
    "This will put spokes in the market ... even the ones that
have seen huge subscriptions will see a drop in the premiums,"
Arun Kejriwal, founder of independent research firm KRIS, told
Reuters.
    
    BEHEMOTH LIC IN THE WINGS
    All eyes are turning to plans for India's biggest-ever IPO,
that of state-owned life insurance behemoth LIC, which is
expected by the end of March 2022 and could raise more than $10
billion if the government offers a stake of 10%.
    Some analysts see little risk from the Paytm fallout for
LIC, however, as it is a household name in India, commanding
more than 60% of the life insurance market, with assets
exceeding $500 billion. 
    "My sense is even if they price LIC a little higher, I think
given what it is, and what it stands for, and what's been built
over many years, I don't think it'll be a problem," said an
executive at a boutique investment bank who sought anonymity.
    "There's tremendous interest and there's money in the
market."
    Some say concerns over LIC cannot be ruled out, though,
despite a business model that is starkly different from that of
Paytm.  
    "Everybody will be in a bit of a learning mode after this
(Paytm) listing," said one of the investment bankers working on
LIC's IPO, adding that they remained confident about its
chances.
    The government has named Goldman Sachs, Citigroup, SBI
Capital Market, JM Financial, Axis Capital, Nomura, BofA
Securities, J.P. Morgan India, ICICI Securities and Kotak
Mahindra to handle the IPO. 
 ($1=74.2490 rupees)

 (Additional reporting by Sankalp Phartiyal; Writing by Nupur
Anand;
Editing by Euan Rocha and Clarence Fernandez)
 ((Nupur.Anand@thomsonreuters.com; +9122 68414388;))