28 Jan , 2022 By : Kanchan Joshi
Are investors starting to lose faith in India's new-generation IT firms?
It certainly appears to be true. The last few days have been the most difficult for all listed start-ups on the bourses.
Shares of well-known brands like Paytm, Zomato, Nykaa, Policybazaar (PB Fintech), CarTrade Tech, and many more were under pressure in the recent stock market meltdown.
In the last six days, the Sensex has lost around 4,000 points whereas the Nifty has crashed around 1,100 points.
The drop is being attributed to waning risk appetite for equities as global central banks prepare to tighten monetary policy in order to combat inflation.
New age company stocks in India are mimicking the pattern on the Nasdaq, where investors have lost their desire for highly valued tech stocks.
The fall in the US stocks has had a global repercussions. Let’s take a close look at Indian tech stocks and their performance since its listing.
Paytm parent One97 Communications' shares fell to a record low on Tuesday, adding to a series of lows hit in the past few days. The stock of the payments company has eroded more than half of IPO investors' money in less than two months.
On Tuesday, shares of One97 Communications fell as much as 4.6% to a record low of Rs875. At that level, the Paytm stock was trading at a sharp discount of 59.3% to its issue price on BSE.
Despite the company's positive business updates and optimistic management commentary, Paytm shares have continued to fall.
Two weeks back, the company said it saw 401% YoY rise in loan disbursals through its platform during October-December quarter. It disbursed loans amounting to Rs21.8 bn, registering a 365% YoY growth.
Paytm is yet to report its financial results for the quarter ended December 2021.
The Rs183 bn public offering of Paytm's parent company, sparked significant controversy about the value, lack of profitability, and spread-out business plan before its debut on the bourses.
The food-tech giant Zomato shares have been under pressure for the last six trading sessions.
Today, shares of Zomato dropped below the Rs100 mark, more than 40% lower from its 52-week high of Rs169. The stock of the food delivery app quoted at Rs90.5 on NSE, down 10%.
However, in Tuesday's intraday trade, the company's share price recovered from day's low as the stock gained over 10% on the BSE.
Prior to that, Zomato lost nearly 29% in the last five sessions amid the sell-off in tech stocks.
Commenting on the market correction, here's what Deepinder Goyal, CEO of Zomato wrote to its employees…
The crash was likely ‘on account of global sell-off in growth tech stocks’, which has also impacted the likes of Doordash, Hero, Netflix, and Peloton.
This is the thing about stock markets and public companies - valuations can swing massively without any change in the fundamentals of the business depending on macro-economic factors like inflation, interest rates etc., we had no control on our valuation going up from US$8 bn in the IPO to US$17 bn at our peak, and vice versa now.
For the September 2022 quarter, online food delivery platform Zomato reported widening of its consolidated net loss to Rs4.3 bn mainly on account of investments in the growth of its food delivery business.
The food delivery platform Zomato got listed in July 2021 and is up more than 19% from its IPO issue price of Rs76.
Zomato became the country's first unicorn to go public.
Nykaa's parent company FSN E-Commerce Ventures, continued its downward slide. The shares of the beauty e-commerce platform declined nearly 5.5% to hit fresh 52-week low of Rs1,571.3 in today's intraday trade on the BSE.
The stock of fashion and cosmetics online retailer has dropped below its previous low of Rs1,606 touched on 25 January 2022. Nykaa has corrected nearly 20% or Rs410 in the last 5 trading sessions on the NSE.
The stock listed at a premium of 79% to the issue price, marking a strong listing for the online beauty retailer. The company made its market debut at Rs2,001 per share on the BSE against the IPO issue price of Rs1,125.
Presently, the company’s share price is trading up by 45% over its issue price of Rs1,125 per share.
FSN E-Commerce Ventures reported over 95% YoY decline in consolidated net profit at Rs12 m for the July-September quarter as its expenses shot up. It had posted a profit of Rs270 m in the year-ago period.
Since Nykaa is the only profit-making company in the digital space, the company received huge response from investors. It was subscribed more than 82 times at the end on the final day of the IPO.
4. Policybazaar (PB Fintech)
In an otherwise range-bound market, shares of PB Fintech, Policybazaar's parent company, remained under pressure and were trading down for the sixth consecutive day on Tuesday.
The stock was trading at its new low. The counter touched its 52-week low of Rs726 apiece, down 6.5% on the BSE. Policybazaar shares slumped over 19% or Rs175 in the preceding five sessions.
The market value of PB Fintech which is backed by Info Edge has tanked from a high of Rs88 bn just days after its listing in November to Rs33.5 bn. The shares cratered 22% over the past two months.
With this, it has also dropped out from the top-100 most valued listed companies.
Currently, the counter's share price is trading at Rs746 apiece on the BSE, down 3.9%.
The firm is backed by marquee investors such as SoftBank, Tencent, Tiger Global, Temasek, and Info Edge. Just like the other tech companies, the reason behind the sell-off has been triggered by the surge in global and domestic bond yields. It has made their valuations richer than what their fundamentals dictate.
After Tuesday's fall, it's down 51% from its all-time high of Rs1,470 hit on 17 November 2021. On Tuesday, it was down 12% against its issue price of Rs980 per share. PB Fintech made its stock market debut on 15 November 2021.
Apart from these, here's a list of other Indian tech stocks and their performance since listing.
High valuations the reason behind the story of unsuccessful IPOs
When it comes to investing in IPOs, it appears that size does matter.
Think about it...
The number of internet-based companies seeking to go public is increasing every day. Despite making smaller profits, or no profits at all, these firms seek significantly greater valuations than their traditional, listed competitors.
For example, last month, by filing paperwork with the market regulator for its public issue, logistics start-up Delhivery has joined the IPO race.
We all know that the logistics industry is not new.
However, the US$5.5 bn valuation that the 10-year-old firm is apparently pursuing is over 2.5 times the market price of Blue Dart, a 38-year-old established company.
On the other hand, Oyo, hotel-room aggregator, is apparently seeking a valuation three times that of Tata-owned Indian Hotels. Moreover, the euphoria of owning a piece of these well-known brands has caused a new generation of young, tech-savvy investors to enter the market.
Since the pandemic, retail investors, both young and elderly, have flocked to the stock market. This rush is being fuelled by the advent of app-based trading platforms that provide seamless onboarding and trading experiences.
Excess liquidity in the market is also one of the core reason behind the high valuation of these IPOs.
Is the 'Unicorn' craze over?
The pace of unicorn creation has been accelerating in India as powerful venture capitalists battle for interests in the most inventive startups.
India is the third-largest home for unicorns globally, but trails the US and China by a wide margin.
According to a report, the country has seen a total of 44 companies turn unicorn in 2021. With the start of 2022, India has been starting to see unicorns already with Mamaearth being the first of the unicorn of 2022, followed by Fractal Analytics and LEAD School.
Usually, startup companies grow based on hype. Many are still bleeding red ink i.e. they do not make any profit. Hence, their value depends upon the euphoria of investors backing them.
Lately, Indian unicorns are facing some backlash due to unrealistic valuation, excessive spending, high risk appetite, lack of innovation, and ‘loss making company’ status.
However, it appears to be a temporary setback as several unicorns are gearing up for their IPOs.
Many startups like Delhivery, Oyo, PharmEasy (API Holdings), Snapdeal, and many more have received the regulators' approval or are yet to receive as they get ready to launch their IPO.
As things stand now, the future of India's new economy looks very bright indeed. However, a gold rush of sorts in the tech start-up space here may draw increased scrutiny from the regulators.
Therefore, one must keep an eye out for any tweaks in regulations or compliance requirements that may surface in the coming months.