If Warren Buffett's Berkshire Hathaway has invested in Paytm now, Rupert Murdoch bought from Microland then. A walk down memory lane clearly suggests that what seemed to inspire confidence then is similar to what inspires confidence now. The story of today's unicorn valuations doesn't seem very different. Why this was clearly absurd, we all know and realize now. In essence, if you expected a business to grow at 100 percent year-on-year, a PE multiple of 100 was ascribed. This was at a time when the PEG (price-earnings growth) ratio had become a popular yardstick. During the dotcom boom, the Nasdaq Index had quoted at a PE multiple of 200. What can a significant debacle of a new age company listing have on the prospects of peers? We only need to draw lessons from history to realize this. VALUATION EQUATIONĪnd this should be seen in the context of the fact that nearly 60 percent of its operating income goes towards meeting payment processing charges (paid to banks to facilitate the transactions). In contrast, HDFC Bank and ICICI Bank trade at the market cap to net profit and net worth multiples of 28x and 30x, and 4.2x and 3.5x. Even on a post-money Balance Sheet size, the multiple would work out to 7.9x.
To give you a sense, Paytm’s proposed market cap is 14.7x its pre-money Balance Sheet size and 50x its total operating income (not profit, mind you). Given that optically, Paytm’s valuations as indicated by the offer price are lofty, it makes for an interesting case study. What’s definite, though, is that there will be an impact on the perception of how successful or not the Paytm listing is. This since Nykaa has delivered a heady return. It remains to be seen whether an adverse listing will severely impact investor interest, or whether it will just make investors more selective. But a failure to deliver gains on listing day could very well have the opposite effect. A strong listing would bring back some investor confidence and provide the upcoming new age IPOs a leg up. However, the listing outcome of this top-rated fintech player is being closely watched for cues to the street’s confidence in the new-age businesses. The Paytm IPO, India’s largest, pulled through convincingly in the final lap of its offer period.
What’s more, there are likely compulsions on this front with its biggest rival Swiggy still raising big money from the private market, which isn’t near-term bottomline focused. That sounds like a clear message that turning profitable in the short run clearly isn’t a priority. We will continue to focus relentlessly on the long term”. We are adamant that we will not let our IPO change anything, and we aren’t going to morph into a QSQT business (‘quarter-se-quarter-tak’). The company’s CEO and CFO in their message topped the communication with this: "One last thing – we have heard that a public listing changes a number of things for companies. Zomato also said it will invest $1 billion in startups in the quick commerce space over the next two years. While the food delivery major reported a robust over 30 percent quarter-on-quarter growth in users and a strong growth in the gross market value of sales via its platform, margins crimped by 67 percent and operating losses swelled. Recent quarterly reports by digital world leaders like Zomato have also left investors with mixed views. What’s more, several veterans have publicly expressed to sit it out and give many of the new age offers a pass. Is there much more on the table, especially in the short run? That’s the question that’s nagging most investors. What’s more disconcerting in many cases, is that the sums raised are being used to provide “exits” to existing investors, who are selling out with heady gains. There is a growing unease among seasoned public market investors about the presumably lofty valuations of many new-age businesses coming to the market to raise funds.