By Matein Khalid
Speculative manias in the financial markets invariably culminate in hysteria and greed run amok. So the 25% fall in the $2.5 billion Paytm IPO, India’s celebrated fintech could well be a cycle peak for the current zeitgeist, just as the busted IPO of Reliance Power was in the Dalal Street asset bubble of 2007-08.
Mr. Marketji is obviously unimpressed by Paytm’s brand name investors – Warren Buffett, SoftBank and Alibaba. As India has embraced the Washington led anti-China Quad strategic alliance, Alibaba/Ant Financial’s 33% ownership in Paytm is a geopolitical kiss of death. Paytm was priced way too high by its underwriters Morgan Stanley, Goldman Sachs and Citigroup. I remember Goldman Sachs and Morgan Stanley had once valued the Uber IPO at $120 billion. Thirty months later, Uber is EBITDA positive but valued at only $78 billion.
The Paytm IPO debacle reinforces my view that some of the world’s most hyped fintechs are now grossly overvalued in the private market. Stripe, Revolut, South Korea’s Toss, Sweden’s Klarna Bank, which is up more than four times since late 2020 when I first discussed with my friends in the Gulf and even wrote a media article predicting a $30 billion post IPO valuation. Klarna is still private but valued at $46 billion.
Asset bubbles do exist in global markets and the 20% fall in Bitcoin is only the tip of a very deadly risk aversion iceberg du jour. While sad sack Reliance Power trades at 95% below its 2007 IPO price, I doubt if Paytm will share the same fate, though its operational performance and strategic choices seem iffy to me long before its over-hyped flotation.
In the private markets, every deal is unique and necessitates a subtle analytic paradigm that the average retail broker, let alone NRI punter, does not remotely possess. The Paytm franchise was obviously hit by the Indian government’s UPI digital payments infrastructure. PhonePe, with its Google/Walmart pedigree is now the market leader. Paytm’s diversification into insurance and investments means there is a me too dimension to its strategic template that is certain to hit its valuation metrics. As the blowout post-IPO performance of cosmetic firm Nykaa or insuretech PolicyBazaar demonstrates, all Indian unicorn IPOs are not alike but these two puppies are also now grossly overvalued.
Goldman Sachs concludes Indian unicorns trade at 21X revenue while the Nifty is at 3X revenue, an obvious metric of speculative mania. Justifiable? No. If investors must jump out of burning airplanes, please at least use a parachute.
Regulation, cash burn, competition and lack of strategic focus mean I am not interested in Paytm unless it falls to INR 600 as I expect it will. Then and only then will I revisit this puppy. True, Softbank is an anchor in Paytm but these guys just wrote off $55 billion in dud deals in their Q3 earnings and they also invested in the world’s largest dog walking website. My response to such doggy deals is bow wow Oyo!
Matein Khalid is Strategic Advisor – Asas Capital
Also published on Medium.
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