Indian fintech giant Paytm’s disastrous public listing last week—which saw the company’s shares plunge 27% from the issue price on the debut day and eroded over USD 5 billion of investors’ wealth—has begun to weigh down the upcoming fintech IPOs in the country.
On Tuesday, a report by local media Economic Times said Paytm’s smaller rival MobiKwik might delay its initial public offering (IPO) by two to three months. The Gurugram-based company had filed its draft IPO papers for an INR 19 billion (USD 255 million) IPO in July, which was approved by the Indian market regulator in October. Reportedly, MobiKwik was looking to do the IPO in November.
MobiKwik is seeing a lackluster demand from domestic and foreign institutional investors for its anchor book, which is why its public issue is being postponed, said the report, quoting sources. The company has also been advised by investment bankers not to proceed with the IPO as it may be hard to find anchor investors due to growing concerns regarding business models adopted by local loss-making fintech players.
The anchor book is a list of institutional investors who are invited to buy shares at a fixed price before the IPO opens. This boosts investment sentiment because anchor investors are believed to do thorough research before investing and indicates the demand and popularity of the IPO.
Ironically, Paytm’s anchor round was oversubscribed ten times, garnering interest from 122 institutional investors, including Singapore’s GIC, Canada Pension Plan Investment Board, and BlackRock, who bought more than 38.3 million shares for a total of USD 1.11 billion. Despite raising almost half of the USD 2.47 billion IPO target from anchor investors and witnessing an oversubscription of 1.89 times during its three-day public issue offering, Paytm’s market debut turned out to be a dud.
Paytm’s weak performance was ascribed to its expensive valuation, questionable business model, lack of clarity on the path to profitability, and cutthroat competition. In a recent note, Sydney-headquartered investment banking and financial services firm Macquarie said Paytm’s business model “lacks focus and direction” and that the company is a “cash guzzler.”
Industry experts believe Paytm’s bummed market listing will bring down the sky-high valuations of fintech companies eyeing public markets.
Reportedly, the IPO valuation of MobiKwik has come down by as much as 30–40%. The company was valued between USD 700 million and USD 750 million when Abu Dhabi Investment Authority wrote it a USD 20 million check earlier this June. The 12-year company had been aiming to list at a valuation of at least USD 1 billion.
“There isn’t enough support from foreign institutional investors for this issue, and the company is currently seeing a cut in its valuation,” the report said, quoting a person aware of the matter.
Founded in 2009 by Bipin Preet Singh and Upasana Taku, MobiKwik offers mobile payments, payment gateways, credit products including “buy now, pay later” (BNPL), insurance, and wealth tech services. It has raised over USD 165 million via equity and debt so far. With more than 101 million registered users as of March 31, 2021, MobiKwik trails behind SoftBank-backed Paytm and Walmart-owned PhonePe, which claim to have over 450 million and 300 million registered users, respectively.
Paytm isn’t the only fintech major to receive a lackluster response from public market investors.
PB Fintech, the parent company of insurance platform Policybazaar and credit marketplace Paisabazaar, which went public days ahead of Paytm, listing its shares at a 17% premium on the issue price of INR 980, saw its shares drop over 6% on local stock exchange BSE on Monday.
Despite making a decent market debut on November 15, PB Fintech’s performance paled in comparison with Zomato and Nykaa, the two high-profile startups that went public over the last few months, listing at 52% and 78% premium, respectively. Similarly, Fino Payments Bank, a Mumbai-based digital banking firm that made its stock market debut on November 12, listed at a discount of over 5% compared to its IPO issue price.
Paytm’s flop public debut and subsequent fall in its share price for two days straight have left investors in a lurch. Given that Paytm’s USD 2.47 billion IPO was the largest-ever listing in the Indian capital market, its poor market debut is expected to have wider consequences for future tech IPOs. Many industry veterans believe it may also depress the valuations of tech startups in the private markets, which are soaring amid record capital inflows in the country. As per data collated by research firm Venture Intelligence, local startups raised about USD 24.2 billion in the first three quarters of 2021.