Paytm share price has surged in the unlisted market following the announcement of the company’s initial public offering (IPO). Paytm stock has almost doubled in the unlisted market to up to Rs 24,000, according to the people who deal in shares of unlisted companies. Paytm shares in the unlisted market were trading at Rs 11,000-12,000 per share before the IPO news. In just five days after the IPO news the share price rose to Rs 21,000, according to the dealers. “The shares of paytm were available at very cheap valuations prior to the news and the valuation gap led to heavy demand amongst the investors and shares almost rallied over 100 per cent in a week,” Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares, told Financial Express Online.
Earlier, last week, Paytm received in-principle approval from the company’s board to raise around Rs 22,000 crore through IPO during the October-December quarter this financial year. The company expects to raise around Rs 21,000-22,000 crore from the IPO, news agency PTI quoted a source as saying.
Pre-IPO investing: Be cautious
Paytm’s major shareholders include Alibaba’s Ant Group (29.71 per cent), Softbank Vision Fund (19.63 per cent), Saif Partners (18.56 per cent), and founder Vijay Shekhar Sharma (14.67 per cent). AGH Holding, T Rowe Price and Discovery Capital, and Warren Buffet’s Berkshire Hathaway hold less than 10 per cent stake in the company.
“One thing to be cautious of here is that Paytm hasn’t decided on an issue price yet, so it may very well happen that the price being paid now in the unlisted market may be very much higher than the IPO price,” Aditya Kondawar, Founder, COO, JST Investments, told Financial Express Online. Kondawar further said that a similar thing had happened in Barbeque-Nation, as its 2018 pre-IPO price was Rs 1,100 (price corrected to 600 eventually), with IPO coming in at Rs 500. Moreover, pre-IPO shares come with a one-year lock-in period.
Can strong grey market premium in Paytm shares result in listing gains?
“Of course, there are examples where pre IPO investing has also benefited a lot of investors, but it doesn’t hurt to be cautious and have a margin of safety built-in,” Kondawar added. “There is a lot of expectation from this stock and inspite of these high prices there are investors who expect to make money from the IPO, the price band of IPO is not yet announced however such premiums in the grey market may result in listing gains,” Vishal Balabhadruni, Banking Analyst at CapitalVia Global Research, told Financial Express Online.
Highly disruptive space, tough competition from Google Pay, PhonePe
Paytm has warded off stiff competition from global players including Walmart’s PhonePe, Google Pay, Amazon Pay and Facebook’s WhatsApp Pay. Upon successful launch of IPO, Paytm would be the largest such offer. The Rs 15,200-crore Coal India’s IPO launched in 2010 is the country’s largest public issue to date.
It would be keen to watch if Paytm would really get such valuations as the company is still loss-making. The space is highly disruptive as Paytm is facing tough competition from Google Pay and Phonepe which have established themselves very well in the last few years. “Currently, very limited deals are taking place in unlisted markets due to low supply of shares. Before the IPO, the company may take corporate action like bonus or shares split,” Abhay Doshi said.
Paytm is one of the established players in the Fintech space with a deep market penetration and share. The company, which started as a payments interface, also got into alternate banking by becoming a payments bank.
(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)