‘Cash burning machine’: Key reasons why Paytm crashed on market debut

India’s biggest IPO with a size of ₹18,300 crore fails to impress on opening day

Paytm operates in segments ranging from mobile wallets to payments banking and insurance.

One97 Communications-owned, owner of Paytm, made a disappointing stock market debut on Thursday.

India’s biggest IPO with a size of 18,300 crore, Paytm got listed on the bourses at 9 per cent discount to its offer price and the share soon touched the lower circuit. It closed at a price of 1,560, 27.40 per cent below the offer price.

To make it worse, foreign brokerage house Macquarie Capital Securities, in a report titled ‘Too Many Fingers in Too Many Pies’, dubbed the company a cash guzzler and slashed the stock price by 44% to 1,200.

Suresh Ganapathy and Param Subramanian, analysts who authored the report, said that “dabbling in multiple businesses prevents Paytm from being a category leader in any business except wallets, which is becoming inconsequential with the meteoric rise in UPI payments.”


“Paytm has a history of spinning off several business verticals without achieving market leadership or profitability,” they added.

Also read: India mulls treating cryptocurrency like gold

Currently, Paytm operates in the payments segment, consumer lending, payment gateway, credit card, wealth, mini application platform, advertising, and even ticketing – none of them profitable yet.

Cash Burning Machine

The report said that Paytm has been a “cash burning machine… with no visibility on achieving profitability.”

Paytm has drawn in equity capital of 190 billion since inception, of which 70 per cent (132 billion) has gone towards funding losses. The business generates very low revenues for every dollar invested or spent towards marketing. “This is especially problematic for a low-margin consumer-facing business where competition across each vertical is only increasing,” said the report.

Pricing Issue

The hefty pricing of the IPO has also been a concern among analysts. The grey market pricing of the IPO was at a steep discount owing to higher valuation of the company.

The Macquarie report said the valuation, at around 26-times FY23 estimated price-to-sales, was expensive especially when profitability remains elusive for a long time. Most fintech players globally trade around 0.3-0.5-times price-to-sales, added the report.

Long Road to Profit

According to Macquarie’s estimates, Paytm will only generate positive free cash flow (FCF) by 2029-30. “Despite factoring in an aggressive ~50% CAGR increase over the next five years in non-payment business revenues led by distribution business, we expect PayTM to generate +ve FCF only by FY30E,” the report said.

Vijay Shekhar Sharma, founder of One97, however sounded optimistic over the long-term future of the company.

“No investor comes for one day. We should not say investors lost wealth. One day’s loss not the whole picture,” he said in an interview.

“We have to do a good job in explaining the model and it’s just the first day. 

“We are growing on revenue, we are growing on margin. We are expanding and we will continue to expand,” he added.