Shares of One97 Communications, the parent company of Paytm, continued to gain sharply on November 24, after closing more than 9 percent up in the previous session.
The recovery comes as a major relief to investors who became jittery after a disappointing debut by the payments giant on the bourses on November 18. After listing at a 9 percent discount to the issue price of Rs 2,150, its shares closed 27 percent lower at Rs 1,564 on the first day of trade, spooking investors as well as start-ups that plan to go public soon.
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The stock fell more than 13 percent and hit an all-time low of Rs 1,271.25 on the second day on the bourse, erasing over Rs 52,000 crore of its market capitalisation in two days.
Many experts and market participants had written off Paytm as an overvalued stock that should be avoided at all costs, especially on the back of uncertainty over its business model, path to profitability, and rising competition in the space.
Analysts continue to believe the stock is overvalued, with Macquarie maintaining a target of Rs 1,200, citing “lack of focus” in the business.
The shares of the company rebounded on Tuesday in a volatile market and hit a high of Rs 1,525 on the BSE.
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On Wednesday, the shares extended those gains and, at 02:21pm, they were up 16 percent at Rs 1,727.75. The stock hit a high of Rs 1,758, which is more than 80 percent of its issue price of Rs 2,150. Its market cap currently stands at Rs 1.12 lakh crore.
“Paytm is finding buying interest at lower levels following a sharp fall after listing. If it manages to sustain above Rs 1,700 level, then it may see further buying interest,” said Santosh Meena, Head of Research at Swastika Investmart.
He believes that Paytm’s massive customer base and strong brand positioning are the company’s biggest strengths, but warns that there is no clear moat in the business along with a low entry barrier.
Meanwhile, Abhay Agarwal, Founder and Fund Manager at Piper Serica, is of the view that investors who believe the stock presents a good long term opportunity are buying at current levels.
“Also, large investors who bought the shares in the IPO are looking to average down their acquisition price,” he said.
The stock should stabilise within a zone after the high volatility, Agarwal said. The downside risks remain because the anchor investors will be able to sell after the one-month lock in gets over, he added.
Analysts have warned that this is just a technical rebound since there is no fundamental change in the business.
“Investors should wait for the valuation to settle before entering the stock. We believe this is still early days for such new age stories getting listed on the bourses,” said Divam Sharma, Co-founder of Green Portfolio.
We believe this gain as a technical rebound. Unless there is fundamental change in the business in terms of growth in more profitable segments like insurance distribution, co-branded cards, wealth management etc. we would want to wait and see.
On November 21, the company reported a positive business update, saying that it recorded a 418 percent year-on-year growth in the value of loans disbursed in October.
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“October saw continued increase in adoption across our different financial services products. The lending business continued to show very strong growth as a result of rapid scale-up of all of our lending products, including Postpaid, consumer loans, and merchant loans,” Paytm said.
The One 97 Communications Board of Directors will meet on November 27 to consider and approve the quarterly financial results. It is expected to subsequently release the July-September earnings numbers the same day.
