Shares of Indian digital payments firm Paytm disappointed in their trading debut after the company's oversubscribed USD 2.44 billion offering recently made it India's largest ever. Paytm's stock sunk 27% below its issue price in afternoon trading on the Bombay Stock Exchange and the National Stock Exchange as investors fretted about its long-term prospects and whether it can ever turn a profit. Paytm's shares were trading at a discount of 27.3% or INR 1564 ($21.15) per share at 1514 Indian Standard Time after opening at INR 1955 ($26.4), down from the issue price of INR2150 ($29). Paytm is the second notable loss-making company after food delivery firm Zomato to raise money on Indian exchanges. Paytm, the fintech company that Indians use for daily services like buying groceries and paying their electricity bills, narrowed its operating loss to INR16.55 billion ($220.6 million) in the financial year that ended March 2021 from INR 24.68 billion ($329 million) a year ago. The company posted a loss of 17 billion rupees ($230 million) last year on revenue of 31.86 billion rupees ($430 million). Profits aren't on the horizon any time soon. Paytm's losses have analysts worried about whether the company can justify its valuation. It counts China's Ant Group, Softbank's Vision Fund, and Berkshire Hathway among its investors. Foreign investors have been enthusiastic. The company raised $1.1 billion from BlackRock and the Canada Pension Plan Investment Board just before the IPO opened, according to an exchange filing. And on the day of the launch earlier this month, Softbank founder and existing Paytm investor Son declared that," for us, their IPO should be a great event." However, the response in India has been different. While Paytm's IPO was eventually fully subscribed, much of the local media coverage has been lukewarm, highlighting that the company took longer to find buyers for its shares than two other Indian startups in recent months, food delivery company Zomato and e-commerce firm Nykaa.The real story here is that someone aimed to do something that had not been attempted before and many thought could not be done in the Indian capital markets, in reference to the challenge of launching such a large IPO before the company has turned a profit." We expect to continue to incur net losses for the foreseeable future and we may not achieve profitability in the future," it said in its IPO filings, adding that the company will continue to spend heavily on hiring, marketing and building infrastructure. Two years ago, the company was in this super high investment phase creating a lot of consumer and merchant traction on the platform and found that it is easier than two years ago to acquire and retain customers, hence, were spending a lot less. Their target was a customer base of 500 million Indians & would continue to spend high on marketing. As the cost of data and internet in India falls, its population of 1.3 billion is coming online at a rapid pace. Paytm expects the number of smartphone users in India to hit 800 million in the next five years, giving a significant boost to its business.Skeptics have pointed to mounting competition, particularly as Facebook (FB) and Google (GOOGLE) have joined the fray by launching their own mobile payments systems that make use of the Unified Payments Interface (UPI), an Indian government-backed technology. The Company was not worried as UPI-based payments make just one "chunk" of Paytm's business, which has now expanded into commerce, lending and other sectors. While financial services are a relatively new part of the company's business, the company is excited about the opportunity to be "democratic" with lending, and reach everyone from the self-employed to the daily-wage laborer. The company plans on strengthening this business with the money it has raised. A vast majority of Indians do not have access to formal credit, they just don't have a credit history & so there's a lot underserved or unserved. Paytm has partnered with banks including the country's largest private lender. HDFC to provide services ranging from personal loans to buy now, pay later options. "Pay later" really suits the needs of younger millennials in the country, because many of them just find the process of getting credit anywhere else not suitable for them.

Answer the following:

1.Comment on the prospects of any company going for a mega IPO even before it has made any profit? (2 Marks)

2. What are your suggestions for Paytm to reach positive cash flows ? (2 Marks)

3.Will high profile foreign stakeholders & huge customer base sustain in the long run for the company? (2 Marks)

4.What are your views on prospects of earning growth in Paytm five years from now? (4 Marks)