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Tuesday, January 25, 2022

Explained: Why is Paytm falling on the bourses?

The shares came under pressure following news that HDFC Mutual fund, one of the four mutual funds that were anchor investors in its IPO, significantly reduced its holding of Paytm across two schemes in the month ended December 2021.

Written by George Mathew , Sandeep Singh , Edited by Explained Desk |
Updated: January 11, 2022 10:08:04 pm
Shares of Paytm fell 6 per cent on Monday and they have lost 13 per cent since December 31, 2021. (Reuters)

Shares of One 97 Communications, which owns the Paytm brand, fell sharply by over 6 per cent on Monday to hit its all-time low of Rs 1,151 before closing at Rs 1,157.9. The shares came under pressure following news that HDFC Mutual fund, one of the four mutual funds that were anchor investors in its IPO, significantly reduced its holding of Paytm across two schemes in the month ended December 2021.

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Why the fall?

Shares of Paytm fell 6 per cent Monday and they have lost 13 per cent since December 31, 2021. While mutual funds held 0.81 per cent in the company as of November 17, 2021, disclosure of reduction in holding by HDFC Mutual fund in the company, weakened investor sentiment.

According to the monthly portfolio disclosure of the schemes as of December 31, 2021, while HDFC Mid cap opportunities fund that had invested Rs 65 crore in the company at the time of its IPO brought down its holding in the company to Nil by December 31, HDFC Balanced Advantage fund which had invested Rs 39 crore in the company also reduced its holding by over 90 per cent from 1.84 lakh shares in November 2021 to 15,000 shares in December 2021.

Market participants say that while the IPO was overpriced initially and that resulted into weak subscription for the issue, the sentiment around the stocks turned weak following its underperformance since listing at the stock exchanges. “There have been concerns over the business growth potential of the company too, as a result it has not been able to sustain its price at the stock markets,” said a fund manager, who did not wish to be named.

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The fund manager further said that a large fund house generally exits a company only if the fund manager realises that it made entry at the wrong price level and that there is more downside to it. “When the fund manager believes that the stock may continue to trade low over the near to mid-term, they book losses and exit,” he said.

When contacted, HDFC MF spokesperson declined to comment as fund houses do not comment on stock specific investment decisions.

Who all invested in the IPO?

While investors were allotted shares at Rs 2,150, they have not been able to touch the issue price ever since it got listed on November 18, 2021. The highest that it has ever hit was Rs 1,961 and that was on the listing day. While mutual funds held 0.8 per cent in the company as on Nov 17, 2021, FPIs held 10.37 per cent stake in the company.

As part of anchor investors, four mutual funds had invested Rs 1,050 crore at the time of the initial public offering of the company. While Aditya Birla MF invested Rs 515 crore across nine schemes, Mirae Asset invested Rs 375 crore across four schemes. HDFC Mutual fund invested an aggregate of Rs 150 crore across four schemes and BNP Paribas invested Rs 10 crore during the IPO.

Market regulator Sebi has changed the rules for anchor investors to prevent a crash after 30 days of listing. The existing lock-in of 30 days will continue for 50 per cent of the portion allocated to anchor investors and for the remaining portion, lock-in of 90 days from the date of allotment will be applicable for all issues opening on or after April 1, 2022.

Why have investment banks cut Paytm rating?

Leading investment banking firm Macquarie has cut the price target for the Paytm stock by 25 per cent to Rs 900 from around Rs 1,200, retaining its ‘underperform’ rating on the stock. This means there could be further downside in the stock.

“Post the various business updates and results, we believe our revenue projections, particularly on the distribution side, are at risk,” Macquarie said in a report. It has cut its estimate for Paytm’s revenue by an average 10 per cent per year till 2025-26 due to lower distribution and cloud revenue. This has only partially been offset by higher sales from payment operations. “Senior executives have been resigning from Paytm, which is a cause of concern and could impact business in our view if the current rate of attrition continues,” it said.

What’s Paytm saying?

The number of loans disbursed through the Paytm platform increased by 401 per cent year-on-year (Y-o-Y) to 4.4 million loans in the third quarter (Q3) of FY 2022. “This is in continuation of the significant growth seen in the past quarter. In Q3 FY 2022, the value of loans disbursed through our platform during the quarter was Rs 2,180 crore (run-rate of $1 .2 billion), an increase of 365 per cent. We have seen stellar growth in each of the lending products — Paytm Postpaid (Buy-Now-Pay-Later), personal loans and merchant loans,” Paytm said in a statement.

“GMV (gross merchandise value) processed through our platform during the quarter aggregated to approximately Rs 250,100 crore ($33.6 billion), growth of 123 per cent Y-o-Y compared to Q3 of FY 2021,” it said. Paytm’s monthly transacting users (MTU) showed consistent growth in FY 2021 and in the first two quarters of FY 2022, it said. The trajectory has continued in the third quarter of FY 2022 with 64.4 million average MTUs, growth of 37 per cent Y-o-Y over the 47.1 million average MTUs in Q3 FY 2021.

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