Paytm likely to buck the trend with a tepid trading debut on Thursday

The institutional investor portion of the IPO was subscribed 2.8 times but nearly 80% of the bids came from overseas investors

The trading debut of Paytm isn’t expected to be as much of a hit like its startup peers Nykaa and Zomato. Grey market activity suggests the stock could list closer to or even slip below its issue price of Rs 2,150 per share.

One97 Communications, the parent company of digital payments major Paytm, will make its stock market debut on Thursday. The company’s Rs 18,300-crore IPO, the biggest-ever in the domestic capital markets, had managed to scrape through in terms of subscription thanks to foreign portfolio investors (FPIs).

The stock was quoting marginally below in the grey market ahead of its listing.

“The indications are that the stock will list below the issue price. If that happens, we need to see if large investors come forward to buy the stock. I believe till the time there is much visibility on profitability, investors will not be enthused. We would like to wait and see and won’t buy immediately,”said Deven Choksey, Managing Director, KRChoksey.

The institutional investor portion of the IPO was subscribed 2.8 times but nearly 80 per cent of the bids came from overseas investors. Domestic mutual funds (MFs) gave largely a miss as they placed bids worth just Rs 155 crore in the IPO.

"We did not have a positive view on the IPO and with lacklustre subscription, we are not very enthused with the listing prospects. Company has been losing value market share to peers and its growth has largely been on high cash burn, which is likely to continue. Even the valuation at 36 times revenue was not attractive. If one gets an allotment, we do not advise holding the stock and it's better to exit post listing,” said Geetanjali Kedia, senior research analyst, SP Tulsian Investment Advisers.

Primary market experts said the high networth individual (HNI) subscription is a good indicator of how the IPO will perform on the first day. In the case of Paytm, the HNI book garnered just 24 per cent subscription.

"Usually, HNIs create an atmosphere for gains through panic selling or greedy buying, which is unlikely to happen in Paytm's case. So I don't see more than a 5 per cent gain or decline on the first day. Paytm's story was not well communicated to the public. Consumers usually flock to a brand if the usage is convenient and Paytm has that advantage. It's better to hold the stock if one gets an allotment for a quarter or two for further clarity," said Arun Kejriwal, Founder, Kejriwal Research and Investment Services.

For 12-month period ended June 2021, Paytm had sales of Rs 3,142 crore. At its issue price, Paytm will be valued at Rs 1.39 trillion. On the post-issue basis, the company is going to list at a market cap to sales ratio of 44.4 times.