Days after its IPO, investors still question Paytm valuations

Top executives at India’s Paytm spent 90 minutes on a call with investors and analysts on Saturday trying to persuade them of the promise for the digital payment giant’s business model after a turbulent initial public offering. They didn’t resolve investor concerns.

On Monday, the stock of One97 Communications, the parent of the digital payments giant, slid again, down as much as 4.6% to 1,700 rupees. That comes after shares ended last week 17% below the company’s IPO price of 2,150 rupees.

Over the weekend, One97 reported its first financial results as a public company, with losses widening to 4.74 billion rupees ($63 million) in the July-to-September quarter from a year ago amid rising expenses. Revenue rose more than 60% in the same period, boosted by growth in financial, commerce and cloud services.

“Paytm faces stiff challenges in its customer acquisition engine which would slow down its revenue growth in the core payments business while scale-up of its related ecosystem businesses (Commerce, Cloud and Financial Services) leaves much to be desired,” analysts led by Sameer Bhise at JM Financial Institutional Securities Ltd. wrote in a note, initiating coverage with a sell rating and a 1,240 rupee price target.

Chief Executive Officer Vijay Shekhar Sharma highlighted the company’s ramp-up in the key segment of lending — an important and fast-growing market in credit-starved India, where digital fintechs such as Paytm are serving millions of consumers and merchants.

“We are fully committed to head down and execute and deliver great results quarter-on-quarter, year-on-year forward on that,” Sharma said in his opening comments.

Paytm raised $2.5 billion in its IPO but its debacle of a debut made it one of the worst initial showings by a major technology firm since the dot-com bubble era of the late 1990s.

Sharma founded One97 two decades ago and began offering digital payments in 2014. It snagged heavyweight backers including Masayoshi Son’s SoftBank Group Corp., Warren Buffett’s Berkshire Hathaway Inc. and Jack Ma’s Ant Group while growing into the country’s most-recognized payments brand.

Paytm has over 335 million users who utilize its platform to make payments and transfer money. Still, fintech companies have struggled to make digital transactions remunerative in India’s vast electronic payments sector, particular in the consumer market where Paytm’s rivals include Alphabet Inc.’s Google Pay, Amazon.com Inc.’s Amazon Pay and Walmart Inc.’s PhonePe.

“India has a large opportunity for credit and the scale-up can be huge from where we stand today,” said Bhavesh Gupta, head of the company’s lending division, on the Saturday call. “Paytm is in both the consumer lending and merchant lending, we have a two-sided opportunity.”

Paytm said its financial services segment saw higher revenues and profitability after volume growth, its commerce business which includes stock trading, airline and movie ticketing has bounced back, and increased uptake of cloud services has boosted advertising revenue.

“Lending and advertising in particular are contributing significant amount of high margin monetization,” Sharma said, even as he acknowledged competition in those businesses.

The company’s path to profitability could be through accelerating lending, commerce and cloud services as well as cutting down on marketing expenditure, said Anand Dama, head of research for banks and financial institutions at Emkay Global Financial Services. An expected moderation in the high-margin wallet business could lead to sustained pressure on revenue growth especially in the payments business, he said.