Paytm falls to all-time low amid competition risk from Reliance

Shares of Paytm ended Tuesday at an all-time low of 477 Indian rupees ($5.8), a week after the lockup period for early backers of the Indian financial services firm ended last week and mounting concerns of growing competition.

The lockup period for the company’s earlier backers expired on November 15, freeing significant investors such as SoftBank Group and Alibaba to sell their shares. SoftBank sold shares worth over $200 million last week. (Indian law requires pre-IPO investors to hold the shares post-listing for up to one year from the IPO.)

At 476 Indian rupees, Paytm’s shares are down over 77% from the IPO price of 2,150 ($26.3). The company, which was valued at $16 billion in a private round in 2016, currently has the market cap of $3.8 billion. Paytm raised more than $6 billion across private rounds and IPO (including secondary transactions).

Tech firms have lost significant value this year as the market takes a downturn and reverses much of the gains from the previous 13-year bull run. Paytm is among a number of Indian startups that went public last year. Zomato, Policybazaar, Nykaa and Delhivery -- some of the other startups that have gone public in the past two years -- are all trading considerably below their IPO prices.

Vijay Shekhar Sharma, the founder of Paytm, assured investors last week that the firm is working “on the right path to profitability and free cash flows.” He added: “Our journey to build a scalable and profitable financial services business has just started.”

The erosion in Paytm’s shares may also have a knock-on effect on the broader fintech startup ecosystem in India. PhonePe, a rival of Paytm, is attempting to raise a round from General Atlantic and Walmart at a $12 billion valuation, according to Moneycontrol.

Sharma has said the company is working to make Paytm hit $1 billion in annual revenue by the end of this fiscal year in March.

The drop in price also coincides with a report from the brokerage firm Macquarie, which notes that Reliance's growing attempts to build a financial services business could pose a "significant growth and market-share risk for players like Bajaj Finance and Paytm with whom it could be competing head-on."

Macquarie gained reputation for its target prices last year after it recommended clients avoid Paytm at the issue price. Many other brokerages and wealth managers, in contrast, recommended they buy.

An analyst at Bernstein, in comparison, had estimated that Paytm’s valuation will swing between $21 billion and $24 billion. (A Bernstein spokesperson did not respond to a request for comment last year.) The analyst has since moved focus to crypto.

The Indian conglomerate announced last month that it will spin off and list its financial services, a move that it said will allow the oil-to-telecom giant to enter and expand into financial services such as consumer and merchant lending business and also build fintech for “all Indians.”

Reliance Industries, run by billionaire Mukesh Ambani, said that it will be incubating, acquiring and inking joint ventures in the new unit, which is called Jio Financial Services, to broaden its offerings to add insurance, payments, digital broking and asset management.