US investment banking giants Morgan Stanley and Goldman Sachs, which were the lead bankers for Paytm’s initial public offering, have set price targets for the company’s shares that are 13-25% below the issue price.
The development comes after One 97 Communications Ltd, which operates Paytm, raised Rs 18,300 crore ($2.5 billion) in India’s biggest IPO last month but crashed 27% at listing and then extended losses.
The disastrous stock market debut of the SoftBank- and Alibaba Group-backed digital payments firm was one of the worst listing performances by a major technology company since the dot-com bubble era of the late 1990s.
Paytm sold its shares at Rs 2,150 apiece in the IPO but ended the first day of trading at Rs 1,564. On Wednesday, the shares were trading around Rs 1,340 apiece. This is 38% lower than the IPO price but up a tad from a record low of Rs 1,271 late last month.
The listing flop has not only left the IPO investors, both individuals and institutions, with deep losses but also raised concerns of loss-making technology companies commanding high valuation and the role of the investment bankers.
Apart from Morgan Stanley and Goldman, Paytm’s other bankers for the IPO were India’s Axis Capital, ICICI Securities and HDFC Bank as well as US-based JPMorgan and Citigroup.
Morgan Stanley, the lead banker, has now initiated coverage on the stock with an ‘overweight’ rating and a price target of Rs 1,875. This is a 43% upside from Paytm’s market price as of Tuesday’s close but still 12.8% below the IPO price. Goldman Sachs has a neutral rating on the stock with a target of Rs 1,600.
Morgan Stanley analysts said in a report that Paytm could start making operating profits in the fiscal year 2024-25.
The analysts said that Paytm’s total addressable market is large, the balance sheet risk is low and profitability should improve sharply as its financial services business scales up. But it also said that Paytm’s business models are new and have both upside and downside risks depending on how the regulatory environment evolves.
Morgan Stanley’s opinion is different from the views of Macquarie and India-based JM Financial. Macquarie values Paytm shares at Rs 1,200 per share. JM Financial had a ‘sell’ call on the stock with a target price of Rs 1,240 apiece.
However, India’s Dolat Capital Market Pvt Ltd has a ‘buy’ call on Paytm, with a target price at Rs 2,500 apiece.