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Book a loss and exit Paytm stock now, advise analysts
Given the offer's aggressive pricing and the fact that One97 Communications, the parent company of Paytm, still remains a loss-making entity, most analysts had expected a sub-par listing
The company's Rs 18,300-crore offering, the biggest-ever in the domestic capital markets, had barely managed to sail through. On an overall basis, the issue was subscribed 1.89 times, with the institutional portion getting a subscription of 2.79 times and the retail investor portion 1.66 times.
Given the offer's aggressive pricing and the fact that One97 Communications, the parent company of Paytm, still remains a loss-making entity, most analysts had expected a sub-par listing. As an investment strategy, they advise investors who got an allotment book loss at the current levels and invest in more promising counters.
“Bajaj Finserv is a much better option to play on fintech businesses as the company has a proven track record with comfort of valuations compared to Paytm. Those who invested in Paytm for listing gain should keep a stop loss below Rs 1,720 which is 20 per cent lower than the issue price,” said Santosh Meena, head of research at Swastika Investmart.
At the fundamental level, those at Macquarie find the Paytm stock expensive and are unwilling to give it a premium as they are unsure about the company's path to profitability. They maintain an underperform rating on the stock with a target price of Rs 1,200.
“Valuation, at around 26x FY23E Price to Sales (P/S) is expensive, especially when profitability remains elusive. Most fintech players globally trade around 0.3x-0.5x PSg (price to sales growth ratio), and we have assumed the upper end of this band. Key risks include change in regulations which allow monetisation of UPI and receipt of a banking license. The biggest challenge for PayTM will be to achieve scale with profitability,” wrote Suresh Ganapathy, associate director at Macquarie in a co-authored note with Param Subramanian.
While its core payments business has been in operation since 2014, One97 Communication has spun-off several verticals in the past three years including consumer lending (2020), co-branded credit cards (2020), insurance distribution (2020), wealth management (2018) and its mini-app platform (2020).
None of these businesses, Macquarie said, has translated into significant revenues or profitability for PayTM. Furthermore, the company has not achieved any meaningful market leadership in any of its verticals outside payments.
“Paytm is one of the expensive stocks we have today. The company is not making profits. This is not the right price to buy the stock. We need to see the financial performance for at least one – two years. Most investors who invest in IPOs do so for listing gain. Holding this stock will not help. If the listing is bad, investors will not get an exit at a higher price. Book a loss here and get away from the stock,” advises A K Prabhakar, head of research at IDBI Capital.
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