MUMBAI (Reuters) -Digital payments start-up Paytm made one of the worst major Indian stock market debuts on Thursday as its shares fell more than 27% after India’s largest-ever IPO.

Paytm’s debut rout raised questions around impending initial public offerings (IPOs) on the until-now red hot Indian market, including those of its smaller rival MobiKwik and hotel aggregator OYO, as valuations come under investor scrutiny.

While some investors had questioned Paytm’s lack of profits and its lofty enterprise value of around 27 times gross profit, the extent of its price fall shocked many and wiped more than $5 billion off Paytm’s IPO valuation.

As the price plummeted, it only stalled when Paytm shares came close to circuit breaking levels on Indian exchanges.

Paytm, backed by China’s Ant Group and Japan’s SoftBank, grew rapidly after Uber listed it as a quick payment option in India and its popularity surged amid the government’s demonetization exercise in 2016.

Its founder and CEO Vijay Shekhar Sharma, who cried with joy at the opening ceremony, later told Reuters he was unperturbed by the slide and did not regret listing in India.

“One day does not decide what our future is,” he said.

“It is new business model. It takes a lot for someone to understand it,” Sharma added in response to the market fall.

Paytm has expanded into services including insurance, gold sales, film and flight ticketing, bank deposits and remittances.

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The value of Sharma’s equity holdings and ESOPs (employee stock ownership plans) were $600 million lower at $1.69 billion at Paytm’s closing price of 1,560.8 rupees, according to Reuters calculations using figures in Paytm’s IPO prospectus.

Sharma did cash-in on the IPO however, selling some 1.87 million shares at the issue price of 2,150 rupees per share, netting 4.02 billion rupees ($54 million).

BREAKEVEN

Paytm expects it could break even by late next year or in early 2023, a source familiar with the matter told Reuters in July, although the company said in its prospectus it expected to make losses for the foreseeable future.

Investors and analysts on Thursday expressed concerns over valuing the loss-making firm at some $18.7 billion in the IPO.

“Paytm’s financials are not very impressive and the growth prospects seem limited... obviously the company lacks a clear path to profits,” Shifara Samsudeen, a LightStream Research analyst who publishes on SmartKarma, said.

The company reported a loss of 3.82 billion rupees ($51.5 million) in the quarter ended in June, wider than a loss of 2.84 billion rupees for the same period last year.

Sharma said Paytm could turn profitable when it did not need to invest “so much more” to fuel growth opportunities.

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Although Paytm’s $2.5 billion IPO was priced at the top of the indicative range, demand was weaker than other recent start-up IPOs like Nykaa and Zomato, which were oversubscribed several times over.

INFLATED VALUATIONS

Many market participants saw Paytm’s slide as a sign that local investors had become disillusioned with heady valuations.

“Most of the domestic institutional investors appear to have skipped the IPO,” added Aequitas Research director Sumeet Singh, who publishes on Smartkarma.

He said that the stock was offered at 27 times enterprise value/gross profit for fiscal 2024, more than the 21.3 times for Zomato Ltd.

Singh also noted both Ant and SoftBank had cut their stakes in the IPO. Ant reduced its to 23% from 28% and SoftBank’s Vision Fund pared its holding by 2.5 percentage points to 16%.

The listing could bring “an end to obnoxious pricing in IPO markets”, Mumbai-based investment adviser Sandip Sabharwal said.

Food delivery firm Zomato surged 66% at its July debut after raising $1.2 billion.

More recently, shares in FSN E-Commerce Ventures, which owns cosmetics-to-fashion platform Nykaa, jumped 80% after its Nov. 10 $700-million IPO debut.

Morgan Stanley, Goldman Sachs, Axis Capital, ICICI Securities, JPMorgan, Citi and HDFC Bank were bookrunnners on Paytm’s IPO.

Reporting by Nupur Anand in Mumbai, Sankalp Phartiyal in New Delhi and Vishwadha Chander in Bengaluru; Additional reporting by Scott Murdoch, Chandini Monnappa, Abhirup Roy, Savio Shetty and Euan Rocha; Editing by Edwina Gibbs and Alexander Smith

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Paytm sinks on debut as India's biggest IPO irks some investors