Trouble for Paytm, promoted by Vijay Shekhar Sharma, one of India’s largest digital payment companies, appears to be getting worse. The company, whose parent company had a nightmarish stock exchange listing in March this year, with its shares trading at almost a quarter of their current price, is now facing fresh issues over Paytm Mall, a platform for shopping for consumers.
Alibaba and Ant Financial, led by Jack Ma, who were early investors in Paytm E-commerce Pvt Ltd, the parent company of Paytm Mall, have exited the business. According to media reports, Paytm E-commerce has bought out the entire stake of Alibaba (28.34%) and Antfin (Netherlands) Holding (14.98%), which values Paytm Mall at just Rs 100 crore , a fraction of the $3 billion (Rs 23,320 crore) valuation the firm showed in its last fundraising in 2020.
“Despite significant capital investment in growing its business and expanding its market share, the company suffered operational losses,” Paytm E-commerce said in a statement. “As the online business space is rapidly changing with the emergence of unique business models, changing technologies and new regulations, it is expected that additional capital and effort will be required to be committed. “
The release says the industry continues to be highly competitive and marketed by the presence of several major competitors. “Finally, the ongoing pandemic has presented unique challenges for different businesses, and the business has also had to contend with a declining market economy and demanding circumstances that place continued pressure on financial metrics,” said the company, adding that it would continue the way. a capital reduction, to extinguish the shares and pay the excess cash to the designated shareholders.
Paytm has faced anger from investors since going public in November 2021 due to a lack of clarity about its business model. On November 18, when shares of One 97 Communications were listed, they fell 27%, the largest ever opening day drop for share sales worth more than Rs 1,000 crore . The stock is listed at Rs 1,950, a 9.3% discount from its offer price of Rs 2,150, and closed at Rs 1,564. Rs 1 lakh crore at the time of listing. The stock fell to Rs 511, its lowest level in a year, on May 12 this year, and was trading at Rs 566 on the BSE on May 20, with a market capitalization of just Rs 36,718.93 crore.
Alibaba has also had its own share of problems. In December 2020, Chinese authorities launched an antitrust probe into Alibaba and fined it a record $2.8 billion for monopolistic practices. In November that year, the Shanghai Stock Exchange suspended dual listing of shares in Ant Group whose initial public offering of $21.77 billion (Rs 1.69 lakh crore) was the second largest in the world. .
As early as last year, analysts said Paytm had its fingers in too many pies and there were so many moving parts that it was difficult to get a handle on its exact business model. There is also increasing competition in each of the segments in which the company operates. “There is no clarity as to what the business model will be, what the key growth drivers will be and what the path to profitability is. Until we have such a clear view of the business, the share price will remain roughly flat,” Dipan Mehta, director of Elixir Equities, said in a TV interview.
“While we like Paytm’s strategy of building a digital ecosystem with its payment business as a backbone, [its] presence in too many segments without leadership in any (except Payments) should allow Paytm to pursue MTU (monthly transacting users) growth instead of profitability/monetization,” JM Financial said in a statement. research note in November. “Against this backdrop, we find current valuations expensive, particularly when breakeven EBITDA (earnings before interest, tax, depreciation and amortization) is expected by fiscal year 2027, in line with our estimates.” In addition, a complex group structure and a large public float (owned by private equity players) would keep valuation multiples in check, he said.
Meanwhile, Paytm Mall will hold an extraordinary general meeting (AGE) of shareholders on May 23 to discuss these developments. With extremely low valuations and a tough trading environment, the road ahead for the company looks difficult.