What Should Investors Do As Anchor Lock-In For Nykaa, Paytm, Policybazaar Nears End

Here is what investors should do as the anchor lock-in period of one year for Nykaa, Policybazaar and Paytm nears its end.

<div class="paragraphs"><p>A Nykaa store.&nbsp;(Source: Nykaa's investor's presentation)</p></div>
A Nykaa store. (Source: Nykaa's investor's presentation)

As one-year anchor lock-in period for parent firms of Nykaa, Policybazaar and Patym nears its end, analysts have advised caution for investors of these new-age tech companies.

Shares for FSN E-Commerce Ventures Ltd., PB Fintech Ltd. and One97 Communications Ltd. have fallen 17.19%, 22.14%, and 11.07%, respectively, since Sept. 1.

Nykaa's parent recovered the losses since last week. Also, the online retailer may escape a "big" selloff as its bonus issue will limit the number of shares that can be sold before Nov. 15, according to a Jefferies report.

Still, since listing on the bourses last November, shares of FSN E-Commerce (Nykaa), PB Fintech (Policybazaar) and Paytm (One97) have tumbled 48.68%, 67.91%, 58.27%, respectively. The selloff was partly driven by global technology stock rout.

For FSN E-Commerce, the anchor lock-in ends on Nov. 10. For PB Fintech and One97, the regulatory leash ends of on Nov. 10 and Nov. 14, respectively.

Here's what analyst BQ Prime spoke with have to say about Nykaa, Paytm and Policybazaar:

Consider Future Cash Flows

Amit Jeswani, founder of Stallion Asset Pvt. Ltd., said investors should buy Paytm and PB Fintech after the unlock happens.

“There is going to be some guaranteed panic supply as there is going to be a large position offloaded," he said. "You don’t buy before the panic, you buy after the panic.”

Investors need to calculate the worst-case valuation for these stocks, Jeswani said. Alongside, they need to consider the future cash flow of these companies and understand from where the future large profits are going to come.

While this is a short-term negative, the street is already pricing the multiple lock-in expiries set for November. “The markets will not give (anchor investors) an easy exit. Markets will make sure that the prices go back to the worst-case possible price.”

Jeswani iterated that till there is no path to profitability, the markets will not pick them up beyond a point.

However, Nykaa has become a very tough proposition, Jeswani said. "Two days before the split date for bonus issue, which is Nov. 11, the stock will get adjusted. No one will be able to sell, even if they want to sell they will be able to sell 1/5th the quantity."

Supply is short-term negative for these three stocks but over the long term, people will value these stocks based on long term cash flow, ability and capability of management to generate very long term cash flow, he said.

Business Needs To Be Profitable

It is not advisable to buy these stocks as the valuations are not getting justified properly, according to Deven Choksey, managing director of KR Choksey,

"When these stocks got listed, at that point of time the hype was more on the business model but now after the listing, the reality check is whether they are profitable and till the time the businesses are profitable, their valuations could not be justified."

Even though these are "good" business models, they need to be profitable to sustain the current valuations or what they were earlier, he added.

Supply Is Not Short Term Negative

SP Tulsian, chief executive officer at, advised investors to exit these stocks. The supply is not a short-term negative because U.S. Federal Reserve’s interest regime is not going to fall for the next 18 months at least, he said.

The investors got easy money when U.S. had virtually zero interest rate, Tulsian said. Now as the rates get increased, people will find it difficult to invest in emerging market stocks, he said.

Citing U.S. marketplaces, Tulsian said Inc. was trading at a revenue multiple of 4 times (excluding Amazon Web Services) at the time when Nykaa was listed. This made a valuation of multiple of 6-10 times “reasonable” for the owner of the beauty and apparel platform. But Amazon has tumbled almost 50% after a year to a revenue multiple of 1.2 times.

For Nykaa, at current market capitalisation of Rs 49,000 crore, a 50% downside cannot be ruled out, Tulsian said. Investors losing interest over 'new age' or 'growth' startups as well as end of one-year lock-in of pre-IPO investors are the triggers to correction for the stock, he said.

(Corrects an earlier version that misstated lock-in expiry dates for PB Fintech and One97 Communications)