CPPIB doubles down on Paytm IPO with Rs1,280 cr bid
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The Rs18,300 crore initial public offering (IPO) of Paytm’s parent company One97 Communications Ltd, the biggest such share sale to hit the Indian stock markets till date, saw the retail portion of the offer getting oversubscribed on Tuesday, the second day of the offering.

The retail book, worth around Rs1,830 crore, was subscribed 123% at the end of day on Tuesday. 

Overall, the IPO witnessed a subscription of 48% on the second day. It was subscribed just 18% on Monday.

The portion of the share sale reserved for institutional investors was subscribed 46%, while the high net-worth individual book subscription stood at just 5%.

To be sure, the Paytm IPO received a boost on Tuesday, as Canadian pension fund CPPIB doubled down on its bet on the company, with a bid of around Rs1,280 crore, said a person aware of the details of the share sale.

CPPIB had also participated in the anchor book allotment of the IPO, a day before the offering opened to the broader investor universe.

Spokespersons for CPPIB and Paytm could not be reached immediately for a comment.

Paytm has priced its shares in the range of ₹2,080-2,150, valuing the company at ₹1.39 trillion at the top end. The share sale closes on 10 November. 

The share sale comprises a fresh issue of Rs 8300 crore and an offer for sale of upto Rs 10,000 crore.

The offer for sale or secondary share sale consists of sale of shares worth up to Rs402.65 by Vijay Shekhar Sharma, upto Rs 4704.43 crore by Antfin (Netherlands) Holdings, upto Rs 784.82 crore by Alibaba.com Singapore E-Commerce, upto Rs 75.02 crore by Elevation CapitalV FII Holdings, upto Rs 64.01 crore by Elevation Capital V Ltd, Rs 1327.65 crore by Saif III Mauritius, Rs 563.63 crore by Saif Partners, Rs 1689.03 crore by SVF Partners and Rs 301.77 crore by International Holdings.

The record setting initial share sale has received a mixed response from analysts, who have called it a good bet to ride India’s fintech wave, but also pointed out that the pricing of the IPO appears to be expensive. 

“At the upper end of the price band, Paytm is valued at 49.7 times FY21 revenues. While valuations may appear expensive, Paytm is well-positioned to benefit from the exponential growth in mobile payments between FY21 and FY26 and hence valuations are justified,” said Jyoti Roy, equity strategist at Angel One Ltd.

Paytm had negative cash flows from operating activities for FY19, FY20 and FY21, primarily due to operating losses and on account of additional working capital requirements.

“Any negative cash flows in the future could adversely affect the results of operations and financial condition,” said analysts at ICICIdirect.

Aswath Damodaran, professor of finance, Stern School of Business, New York University, said in his 4 October blog that given almost all of the value of Paytm comes from expectations of the future, and there is significant uncertainty on every single dimension, it should come as no surprise that the range on estimated value is immense, with a 3% chance that the company’s equity is worth nothing to more than ₹2 trillion (approx $27 billion) at the 90th percentile.

“Even if you strongly favour the company and find it undervalued, it would be hubris to concentrate your portfolio around this stock. In other words, this is the type of stock that you would put 5% or perhaps 10% of your portfolio in, not 25% or 40%,” he said.

If he invested in Paytm, it would not only have to be at the right price, i.e., trading at less than ₹1.5 trillion (approx $20 billion) “but also with the acceptance that this cannot be a passive (buy and hold) investment, but one that will require active engagement and monitoring of the company’s actions and performance,” he added.

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