Don’t buy Paytm shares despite 27% discount, say analysts; price correction fails to convince street

Paytm shares opened at Rs 1,955 per share on the BSE, down 9.07% from the IPO price.

Strong correction in Paytm shares has failed to convince analysts, who remain reluctant to advise investors to buy the fintech firm after the stock hit a 20% lower circuit on listing day. Valuations are still considered expensive and the loss-making tag on the fintech giant is repelling analysts on Dalal Street. “I don’t think it is a good buy, I believe it was overpriced,” Sanjiv Bhasin, Director, IIFL Securities told Financial Express Online. One 97 Communications, the parent company of Paytm, tanked as much as 27% from the IPO price, on the initial day of trade, erasing large chunks of investor wealth within hours of trade. Paytm shares hit an intra-day low of Rs 1,564 per share, down from the IPO price of Rs 2,150 apiece.

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Don’t buy the dip

Paytm shares opened at Rs 1,955 per share on the BSE, down 9.07% from the IPO price. Minutes into the day’s trade, the stock fell more than 15% and after an hour it was seen hovering around in the 20-25% range, with no major attempt of recouping losses. Market veteran Sanjiv Bhasin said that the current fall in Paytm shares still does not warrant a ‘buy’ rating from him. “Market is uncertain and everyone was discounting such a big offering with very little visibility of the future. I believe investors should not buy on decline and wait for the stock to stabilize and see what the colour of the market is then and take it from there,” he added.

Also Read: Paytm shares hit 20% lower circuit on listing day; stock down 27% from IPO price

Even prior to the listing of Paytm, analysts have been voicing concern about valuations demanded by the company. To add to that Paytm has not yet turned profitable and many predict several years before it starts reporting profits. 

Avoid significant bets

Although Paytm has slipped significantly and erased 25% IPO investor wealth, analysts are advising investors to look at other opportunities rather than Paytm. “We don’t think it is a good entry point. In a note earlier, we had said that there are other businesses to look at in the new age companies, but investors should avoid making significant bets,” said Ajit Mishra, VP – Research, Religare Broking. “For Paytm even the current levels do not make sense,” he added.

Paytm not a leader

A concern pulling the stock lower is the complexity of the business. “One of the factors weighing down on the stock is the fact that not many people know what exactly does Paytm do and how they are going to turn a profit,” Aditya Kondawar, Chief Operating Officer, JST Investments said. “Paytm is not exactly a leader in any of the businesses that it runs. Paytm brand, Of course, is valuable with a strong customer base but current valuations have no margin of safety,” he added.

Also Read: Paytm stock may fall 44% from IPO price, says Macquarie, questions valuation; check target price

Similar concerns were raised by foreign brokerage firm Macquarie earlier today that predicted 44% downside from the IPO price. Analysts at Macquarie noted that Paytm is currently a cash guzzler with fingers in too many pies. The brokerage firm added that Paytm may turn free cash flow positive only by financial year 2029-30.

If not Paytm, where to invest

Sanjiv Bhasin said that he is bullish on large-cap IT stocks instead of Paytm. “We are bullish on largecap IT stocks such as TCS, Wipro, Infosys, Tech Mahindra. We would rather put our money there,” he said. Meanwhile, Ajit Mishra believes investors can invest in new-age internet companies such as Nykaa, Zomato, Policybazaar but advises caution while asking investors to invest in a staggered manner keeping expensive valuations in mind.