Shares of One97 Communications, the parent company of fintech major Paytm, were under stress on Wednesday as the one-year mandatory lock-in period for pre-IPO shareholders expired today. The lock-in expiry opened 86% of Paytm's shares free to trade, including those of pre-IPO investors such as Warren Buffet's Berkshire Hathaway, SoftBank, Elevation Capital and Alibaba. Billionaire Jack Ma-led Alibaba Group and its fintech affiliate Ant Group Co. as well as Japan’s SoftBank Group are one of the biggest shareholders in One97 Communications.
An initial public offering (IPO) lock-in period is a time set by the underwriter, which prevents early investors and insiders from liquidating their pre-IPO stocks for a certain time post listing on bourses. As per SEBI, a one-year lock-in period is necessary for pre-IPO investors, post listing of the shares on the bourses. If an investor breaches this rule, they may have to pay a certain fee to the underwriter, which is usually equal to 2% of the value of the shares sold.
Paytm is one of the worst performing initial public offerings (IPOs) of the year, which has wiped off 72% of investors' wealth since listing. The fintech company made its stock market debut on November 18, 2021, after successfully raising ₹18,300 crore at an issue price of ₹2,150. This was the country's second largest-ever IPO, after state-owned insurer LIC of India, which raised ₹20,560 crore from public listing of shares.
On Wednesday, the share price of Paytm declined as much as 4.04% to hit an intraday low of ₹600.75, against the previous closing price of ₹626.10 on the BSE. At 12:05 pm, Paytm share price was trading 3.2% lower at ₹605.80, while market capitalisation stood at ₹39,312.7 crore. On the volume front, 1.28 lakh shares changed hands over the counter on the BSE, against the two-week average volume of 1.1 lakh stocks.
Paytm shares hit its all-time high of ₹1,961.05 on its listing day on November 18, 2021, while it touched a record low of ₹511 on April 5, 2022. The stock currently trades more than 70% lower than its IPO issue price of ₹2,150.
In the last one year, Paytm shares have delivered a negative return of 61% to its shareholders, while it rebounded over 2% in the past six months. In the calendar year 2022, the largecap stock has fallen 55%, while it fell over 10% in a month.
Last week, Paytm’s parent company, One97 Communications, reported second quarter earnings, which showed that its consolidated net loss widened to ₹571 crore in the quarter ended September 30, 2021, as against ₹472 crore in the same period last year. The company posted a loss of ₹644 crore in the June quarter of 2022.
Revenue from operations rose 76% to ₹1,914 crore as against ₹1,086 crore in the same period last year. On a sequential basis, revenue climbed 14% from ₹1,679 crore in Q1 FY23. The growth in revenue was driven by accelerated device deployments, and momentum in commerce and cloud and growth in Paytm’s advertising, resumption of ticketing volumes, credit cards, and PAI cloud, as per the company.
Segment-wise, revenue from payment services to consumers business grew 55% YoY at ₹549 crore whereas the revenue from payment services to merchants surged 56% YoY at ₹624 crore. The company’s net payment margin surged 15% QoQ at ₹443 crore, led by monetisation and improvement in payment processing charges.
Revenue from financial services, which accounts for 18% of its total revenue, zoomed 293% YoY to ₹349 crore, driven by strong sourcing and collection business.
Analysts turn bullish on Paytm shares
Post Q2 results, global brokerages such as JP Morgan, Morgan Stanley, CITI, Goldman Sachs, as well as domestic brokerage houses like ICICI Securities have expressed confidence in the stock.
JP Morgan recently assigned an ‘Overweight’ rating to the stock, and raised the target price to Rs 1,100, while ICICI Securities has reiterated a 'Buy' rating with a share target price of ₹1,285.
"One 97 Communications (Paytm) continues to improve its revenue and margin profile, evident in the narrowing of consolidated loss at ₹570 crore in Q2FY23 (vs loss of ₹650 crore in Q1FY23). Its performance was characterised by sustained lower processing charges and net payment margin improving a tad; sharp acceleration in the lending business with disbursements of ₹7,300 crore; enhanced contribution/ adjusted-EBITDA (before ESOP cost) margin with higher financial services/cloud revenue growth further aided by lower indirect costs; sustained growth in monthly transacting users (MTUs), deployment of offline devices and continued build-up of the gross merchandise value (GMV)," ICICI Securities said in a report on November 9.