After A $10 Billion Selloff, India’s Paytm Must Make Another Decision

Paytm, India’s leading digital payments brand is facing another reckoning a year after the deadliest IPO in Indian history.

The company’s stock’s lock-up period will end this week, enabling investors to sell stocks that haven’t yet been permitted to trade on the market. The largest shareholders in One97 Communications Ltd., the parent company of Paytm, are Japan’s SoftBank Group Corp., Alibaba Group Holding Ltd., and Ant Group Co., a fintech company.

 The largest IPO in India was completed by Paytm and its founder Vijay Shekhar Sharma last November, but the company’s shares had one of the worst debuts ever. Since then, the company has had to spend a lot of money to increase revenues, piling up losses at the same time that investors have become warier of investing in startups that are losing money.

 The days of cash-burning businesses receiving free money are officially over, according to Deven Choksey, managing director of wealth manager KRChoksey Holdings. Even after Paytm’s lock-in period has expired, new investors won’t join until they see free cash flow in the near future. The stock will remain unpredictable until then.

 The company’s shares dropped slightly more than 1% to 630.8 rupees on Tuesday, far below the 2,150 rupees per share IPO price. With a market value of $5 billion, it is considerably less than when it peaked.

 A spokesman for SoftBank declined to comment, and Alibaba delayed responding to requests for comment. The expiration date of November 15 was confirmed by a Paytm representative.

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 Shares frequently fall after lock-ups expire as a result of investor selling. It’s unclear what the large Paytm stockholders’ sale strategy will be. Ant and Alibaba own over 30% of the stock, SoftBank owns nearly 17.5%, and Berkshire Hathaway Inc. owns about 2.5%.

“We recognise that lock-in expiry (86% of Paytm’s outstanding shares) in November ’22 may represent an overhang on the stock,” Goldman Sachs Group Inc. analysts Manish Adukia, Rahul Jain, and Harshita Wadher wrote in a research note in September.

However, given the company’s progress in increasing revenue and moving toward profitability, the analyst advised purchasing Paytm shares. According to their report, “We anticipate Paytm to deliver c. 50% revenue growth for the next few quarters and proceed its transition from an erstwhile payments-only business to one with a solid financial services portfolio.”

Sharma, 44, aimed to allay market anxieties about the shares’ ongoing erraticness in a letter to shareholders earlier this week.

 “We travelled to the open markets a year ago. “We are conscious of the anticipations that Paytm raises, and I can assure you that we are headed in the right direction in terms of profitability and free cash flow,” Sharma said. We are only beginning our journey toward creating a scalable and successful financial services company.

When it comes to navigating market turbulence, Paytm is not alone. Zomato Ltd., a food delivery company, and Nykaa, formerly known as FSN E-Commerce Ventures, both went public last year. When their shares were released for trading, they took a beating. On Tuesday, the Nykaa stock fell as much as 9.4%.

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