(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

MUMBAI - India’s technology startups are being chewed up and spat out. Financial super-app Paytm shot to fame during a big banknote ban five years ago but is now struggling to sell its $2.5 billion initial public offering. Global investors haven’t lost their enthusiasm for red hot valuations in the giant emerging market, they are just being more discerning.

Despite winning big-name anchor investors including BlackRock and Canada Pension Plan Investment Board, founder Vijay Shekhar Sharma’s books are barely half-covered with just one day of bidding to go. Paytm’s $19 billion targeted valuation is almost 3 times the average multiple of Visa, Mastercard  and Charles Schwab.

Its mute reception is a contrast to the sparkling fortune of ex-investment banker Falguni Nayar’s online beauty shop Nykaa. Her $700 million offer was 82 times subscribed and enjoyed an 80% pop on its trading debut on Wednesday, valuing it at $13 billion. The family-run business’ success bests the runaway excitement food delivery giant Zomato enjoyed when it listed in July. Post surge, Nykaa – which ekes out a profit - trades on 40 times trailing sales and Zomato on 29 times.

Paytm’s problem is that its pitch as an all-in-one app, centred on payments, while offering everything from insurance to banking services to ticket sales, looks less unique than it once did. The rapid commoditisation of India’s payment sector, built on top of an open-access digital infrastructure, means profits can only come from other services. Its trove of licences look less valuable as others rush to offer regulated products too. Rivals have cropped up more quickly and easily than in other markets like China.

Loss-making Paytm might have had an easier time if it had listed earlier. Now its up against Alphabet’s Google Pay, Meta’s WhatsApp and Walmart’s PhonePe. Even cryptocurrency trading platforms like Coinbase-backed CoinSwitch Kuber have emerged in these past few months as potential competitors, racking up young and financially inexperienced users at speed.

In comparison, Nykaa has no listed peers and looks like a takeover target for e-commerce giants. Zomato is losing money but it operates in a duopoly against Naspers-backed Swiggy. Both have simpler business models too. Paytm may scrape through but its deal advisors and top backers, SoftBank’s Vision Fund and China’s Ant, may have misread the enthusiasm for Indian tech.

 

CONTEXT NEWS

- Shares of online Indian beauty retailer Nykaa, founder by former investment banker Falguni Nayar, rose 80% on their debut in Mumbai on Nov. 10.

- Nykaa shares offered to institutions were subscribed 91 times and those offered to non-institutional investors, widely referred to as “high net-worth individuals”, were subscribed 112 times. The overall subscription for the roughly $720 million offer stood at 82 times.

- Separately, payments giant Paytm is struggling to cover the books for its initial public offering. On Nov. 9, shares offered to institutions were subscribed 0.45 times and those offered to high net-worth individuals were subscribed 0.05 times. The overall subscription for the approximately $2.5 billion offer stood at 0.48 times. Paytm’s books are due to close on Nov 10.

- Lead managers on Paytm’s deal include Morgan Stanley, Goldman Sachs, JPMorgan, Citi and HDFC Bank.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Robyn Mak and Katrina Hamlin) ((For previous columns by the author, Reuters customers can click on GALANI/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | una.galani@thomsonreuters.com; Reuters Messaging: una.galani.thomsonreuters.com@reuters.net))