Why Adani Wilmar succeed while tech giant Paytm failed ?

The real question is why Adani Wilmar succeeded in the current corrected market while Paytm failed miserably when the market was extremely bullish ?

With a large number of IPOs lined up for the coming months, Calendar 2022 is believed to be a record year for investing in IPOs in India.

Before we dive into the details, let’s discuss some of the key pointers which make the IPO a successful one.

A large, growing addressable market

A unique and differentiated business model

Strong margins and cash flow generation

Paytm case:

Institutional investors have flagged concerns with the company’s growth prospects, considering the absence of a license to enter the lending business — one of the most lucrative verticals in the fintech space

Macquarie Research noted that Paytm’s valuation was “expensive” — 26 times its estimated price-to-sales ratio for 2022-23 when the global benchmark is 0.3-0.5 times the price-to-sales growth ratio for fintech firms.

The issue was fully subscribed only on the last day at 1.51 times, with the retail portion being booked 1.62 times. Usually, a good IPO is oversubscribed by 10-20 times or more.

Adani Wilmar case:

ADL is among the top five fastest-growing packaged food companies in India, with Fortune as its popular brand. The company has 22 manufacturing facilities, comprising 10 crushing units and 18 refineries, located across 10 states in India.

On the financial front, Adani Wilmar Ltd’s profit grew to ₹357 crores from ₹288.7 crores for the six months ended September in the current fiscal year.

Adani Wilmar is the largest player in branded edible oil, with 25% of India’s refining capacity, and has 2x the market share of the next competitor.

The IPO received a positive response from subscribers as it was subscribed over 17 times.

Where Paytm lost 50% market cap post IPO from it’s issue price. Adani Wilmar gained 60% market cap post IPO.

But….If there is one factor that determines the success of your IPO, it is pricing! 

If your stock price closes its first day of trading up 25-50% from its IPO price, you clearly left some money on the table. If you squeeze too much out of the price potential in the IPO itself, then you are going to get a weak listing as well as mad publicity. Seek to attract serious, long-term investors who have done their homework and understand your business.

Bottom line:

While Adani Wilmar proved its business excellence and profitable business to attract long-term investors, Paytm hiped its IPO and marketed to retailers with overpriced valuation when their company was not even profitable.

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