Suhas (name changed), a newbie investor was super excited when he received an allotment for Paytm IPO recently. He couldn’t believe his luck as this was the first time he got an IPO allotment after trying his hands at several other IPO’s recently. However, his excitement quickly turned into disappointment on listing day as the stock closed at Rs. 1564 as compared to its issue price of Rs 2,150 per share.
Touted to be India’s biggest IPO at Rs. 18,300 crores, the mega IPO of One97 Communications Ltd, the parent company of payments app Paytm, ended its debut day with disappointment for retail investors. Amid weak market sentiments, the stock closed 27.24% lower on the listing day.
Paytm is a leading player in online payments market in India and is backed by investment giants like SoftBank, Ant Group and Warren Buffett’s Berkshire Hathaway. The brand has a strong recall value among merchants compared to its peers in the digital payment platforms and also enjoys an early-mover advantage in the segment.
Paytm’s IPO was subscribed 1.89 times, with bids received for 9.14 crore equity shares against offer size of 4.83 crore shares. The retail investor portion was subscribed 1.66 times, whereas the reserved portion of non-institutional investors received 24% subscription. The portion reserved for qualified institutional buyers received bids for 2.79 times.
Key investing lessons for investors from Paytm’s IPO debut:
Read the Red Herring Prospectus carefully before investing
The red herring prospectus is a document filed by a company which intends to float an IPO for raising funds. It provides detailed information to prospective investors including the business model of the company, the objective of the company for raising funds and the risk factors associated with investing in the company.
Avoid herd mentality
In an IPO frenzy market where new age business like Zomato, Policybazaar, Nykaa have raised huge funds from the market with huge listing day gains, investors often overlook the basics and fall for the hype.
In its red herring prospectus Paytm had mentioned that it has incurred net losses for the last three years, including a restated total comprehensive income/(loss) for the year including discontinued operations of Rs.(42,355) million, Rs. (29,433) million and Rs. (17,040) million in FY 2019 and may not achieve or maintain profitability in the future.
The entire episode brought back memories of Anil Ambani’s Reliance Power listing day debacle in the year 2008 for many investors who lost money in the mega Rs. 11,000-crore IPO.
Do your homework before investing
Before its listing, Macquarie Research had given an underperform rating on One97 Communications. The reason according to the foreign brokerage firm was that One97 Communications’ business model lacked focus and direction.
To make matters worse, the stock listed during a sluggish period amid rising concerns of increasing inflation, hike in interest rates and bond yields.
Invest wisely after proper research.
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– Written and contributed by Pradeep Sukumaran.
