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market | IST

Paytm tepid start: More listing dips likely to impact pricing, say experts

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CNBC-TV18 spoke to Karthik Reddy, Co-founder and Managing Partner of Blume Ventures, Vice chairman of Indian Private Equity & Venture Capital Association, and Sudhir Variyar, MD at Multiples Alternate Asset Management, to understand how the IPO game is playing out in the market.

Its been raining new listings in the past few months and a whole lot of new-age companies have arrived on the Street. A key talking point for these players has been the sky high valuations. The Paytm listing disaster has further intensified this conversation. How do you value these new businesses? What is the difference in the public and private market approach and what is likely to be the wider impact?
To discuss this, CNBC-TV18 spoke to Karthik Reddy, Co-founder and Managing Partner of Blume Ventures, Vice chairman of Indian Private Equity & Venture Capital Association, and Sudhir Variyar, MD at Multiples Alternate Asset Management.
On new-age IPO valuation, Reddy said, “Every company, not just Paytm, all the four companies, that is PB Fintech, Paytm, Zomato, and Nykaa are stellar examples of market leadership and redefining the market segments that they are playing in."
"With respect to building new business models for the long-term, I think you Paytm is the least understood in terms of what its business potential could be. The others are relatively more straightforward in terms of the customer problem. It is more of an understanding in the short to medium term of what Paytm could become. That has set people on a nervous path, relative to the other companies, because ironically, the other companies were far less valued in the private domain as in the public domain,” Reddy said.
On valuations, he said, “In all humility, I feel public markets are a place where people do lean on established benchmarks on how to value them. So if you don't have benchmarks, it is going to be challenging. For the first time, I was delighted to see all these businesses take on the challenge and actually go to the markets because they don't have benchmarks in the market. Even for Zomato, Nykaa and Policybazaar, it is not easy to say that there is a clear validation of what has been achieved before.”
“Conventional models don't even justify the other three valuations. So I feel the quantum of institutional support and the quality of institutional support for these stocks, as they try to discover the price is going to be very, very critical. The understanding and formulating of what, how you should value such a business is, is being discovered in the public domain for the first time, which is a fascinatingly interesting time for Indian tech companies,” he shared.
On pricing, Variyar said, “I think if you look at the longer trend, there are a lot more investors coming in, very high quality investors are coming in and saying that it is not just profitability that we look at, but the kind of modes that you build, market leadership, path to profitability, and I guess to a certain extent, these are wise investors and they add depth to the capital market."
He added, "My sense is that these investors are only going to increase so I don't see this as a verdict that these companies should not have come to the capital market, unless lot more things gets proven. I think even proving the business model is a journey.”
Variyar said, “In a very active IPO market, where you are used to seeing IPO pops, you see a lot of speculative investors come in as well. The first sign of nervousness is obviously to swing to the other side. So these are events I guess one would kind of expect in any active IPO market. There would be some IPOs, which will underperform. But overall, I still don't see a situation and if there are a couple of more situations where there is drop in IPOs, post-IPO prices, then you would see the speculative interest go away and there would be more fundamental oriented investors coming in, which will correct the pricing a little bit.”
He added, “However, I would still say that the kind of demand that is there in the market for good quality companies with good macros, good management with a unique business model is very strong. So I don't see IPO activity come down. Yes, there is this segment of speculative investors who come in expecting an IPO pop, not really spending any time trying to understand the business model. The more fundamental investors will take a longer-term view for more stabilisation to see how management is delivering.”
For full interview, watch accompanying video...