Paytm share listing: Vijay Shekhar Sharma wiped away tears of joy as he recounted his rise from a “commoner" to the leader of a digital payments giant that just completed India’s biggest-ever initial public offering.

“The dreams of a young country are with me," said the founder and chief executive officer of One 97 Communications Ltd., operator of the Paytm service, before striking the opening gong at the Bombay Stock Exchange at 10 a.m. local time on Thursday.

By 11 a.m., Sharma’s long-anticipated coming out party had turned into one of the worst opening days for a blockbuster tech listing since the dot-com bubble. The stock’s 27% plunge surprised even some Paytm pessimists, casting doubt on a record-breaking run for Indian equities and leaving Sharma -- and his underwriters -- to face tough questions about what went wrong with the $2.5 billion fundraising.

The short answer is that Sharma’s grand ambition to make Paytm’s IPO the country’s largest-ever backfired. The founder had made no secret of the fact that he wanted his company’s debut to surpass the long-standing IPO record set by Coal India Ltd. in 2010. Indeed, there would be symbolism in a startup that processes payments in bits eclipsing the state-run mining giant. 

Instead, Paytm now looks a example of stunning overreach. The company, with support from leading banks like Morgan Stanley and Goldman Sachs Group Inc., pushed up both the price and the size of the stock offering to the breaking point. Retail investors who piled into the offering are now sitting on heavy losses, along with global giants like BlackRock Inc. and the Canada Pension Plan Investment Board.

“There has been a euphoria around IPOs in India, supported by the bull-run in stocks and people got carried away by it," said Nikhil Kamath, co-founder of Zerodha Broking Ltd., the country’s largest brokerage. “For Paytm, the runway for their profitability is too long and doesn’t justify the far-fetched pricing."

Of course, Sharma sees things differently. 

“I’ve never felt more excited, optimistic and enthusiastic about the future," the 43-year-old said in an interview just as Paytm shares sank on Thursday. The slump is “no indicator of the value of our company."

Indeed, the company he started with a $100,000 loan two decades ago now has billions of dollars in cash to fund its ambitions of serving a billion customers in one of the most promising markets in the world. Sharma, who owns 12% of the company after selling shares in the IPO, has a net worth of $2.5 billion, according to the Bloomberg Billionaires Index.

“We are in it for the long haul," Sharma said. “We’ll put our heads down and execute."

Rocky IPOs aren’t always indicators of the future. Facebook, recently renamed Meta Platforms Inc., lost more than half its value in the months after its 2012 listing in New York. IPO investors who stuck with the company are now sitting on gains of nearly 800%.

Sharma’s personal journey has run in sync with the rise of the mobile internet and the move from feature phones to smartphones. The son of a school teacher, he grew up in a town in Aligarh, in central India, and studied engineering in New Delhi, where he taught himself English by listening to rock music and reading text books with their Hindi translations. 

He founded One 97 in 2000 as a text-based people-search service -- 197 is India’s hotline for phone inquiries. The business soon began providing cricket scores, Bollywood news and horoscopes via text messages to feature phones.

Paytm, whose name rhymes with ATM and is shorthand for Pay Through Mobile, started in 2011 primarily to help users add credit to their prepaid phones before it began to operate a digital wallet service in 2014. Its payments service really took off in 2016, when India’s government invalidated most of the country’s bank notes in an effort to eliminate illegal transactions.

Now, Paytm has 337 million users relying on it for financial and e-commerce transactions. It provides digital loans, insurance, wealth management and stockbroking services in a country with an under-developed banking network. Earlier this week, the firm began offering voice trading, leveraging artificial intelligence to allow users to buy and sell shares with voice commands.

“India is the biggest and best fintech opportunity in the world," Sharma said in an interview ahead of the listing. “If 2010 was the start of an epochal decade for Chinese entrepreneurs building global tech companies, 2021 will be the start of a similar decade for Indian tech startups."  

Critics questioned Paytm’s ability to live up to such lofty promises even before the final IPO pricing. While sales at its core payments and financial-services arm rose 11% in the year ended in March, overall revenue dropped 10% amid intensifying competition, the company reported in July. 

Paytm seems to run on “hyperbolic forecasts from its founder and top management" that are off by a factor of three or four, Aswath Damodaran, a professor of finance at New York University’s Stern School of Business wrote on BloombergQuint this month. “Access to capital from its deep pocketed investors, especially Alibaba, seems to have made this company casual about its business model and profitability, even by young, tech company standards."

Alibaba Group Holding Ltd. and its Ant Group Co. affiliate were among One 97’s early investors, along with Japan’s SoftBank Group Corp.

Paytm and its backers then stretched its valuation during the IPO process, underestimating the importance of solid demand from retail and institutions, according to bankers familiar with the matter. It priced shares at 2,150 rupees a piece, at the top end of its range. In an early sign of trouble, the IPO wasn’t fully subscribed the first days that shares were offered -- a rarity for deals in red-hot India. 

Paytm failed to leave enough money on the table to give investors an incentive to buy in, a lesson for the future, said one of the bankers on the deal, asking not to be named because the details are private. Now, Paytm will face quarter-by-quarter journey to prove its prospects to investors and it should target turning profitable in the next 12 to 18 months, the banker said.

Underwriters Morgan Stanley, Axis Capital Holdings Ltd. and HDFC Bank Ltd. didn’t immediately respond to emails seeking comment. Goldman Sachs, JPMorgan Chase & Co., Citigroup Inc. and ICICI Securities Ltd. declined to comment.

Indians took to social media to voice their frustration -- and schadenfreude. One four-photo montage used repeatedly showed a man going from euphoria to despair with the words, “When U get IPO allotted after a long time, but its Paytm.."

There is skepticism that Paytm can recover quickly. Ahead of the listing, Macquarie Capital Securities (India) Pvt. Ltd. published a report, initiating coverage on the company with an “underperform" rating and a price target of 1,200 rupees, 44% lower than the issue price. It termed Paytm a “cash burning machine" with its payments business a “loss leader."

“Considering Paytm’s heavily cash-burning business model, no clear path to profitability, large regulatory risks to the business and questionable corporate governance, we believe the company is overvalued at the upper end of price band of 2,150 rupees," analysts Suresh Ganapathy and Param Subramanian wrote in the note.

The company’s challenge will be to build scale with profitability. According to Macquarie, the consumer and loan distribution, at best, is only a roughly $350 million opportunity.

“Paytm has to lend, i.e., use its own balance sheet to make loans and do that profitably for which it needs a banking license, credit underwriting experience and collection infrastructure, all of which are lacking at present," the note said.