Know about the biggest Indian IPO - Paytm

Paytm was launched in 2005 with $2 million as seed investment.

Oct 21, 2021 02:10 IST India Infoline News Service

For now, we do not know the size of the LIC IPO, although it is likely to be much bigger. The Paytm IPO (owned by One97 Communications Ltd) is slated to be the biggest Indian IPO at Rs16,600cr. That is a good 10% bigger than Coal India in 2010. This IPO will be split 50:50 between fresh issue of Rs8,300cr and OFS of Rs8,300cr. Currently, it awaits SEBI approval.

About One97 Communications Ltd (Paytm)

Here again is a case of the brand being more popular than the promoter of the brand. Few would have heard of One97 Communications, the company that owns and operates the Paytm brand. It was promoted by Vijay Shekhar Sharma in 2000 and offers a digital payment ecosystem in India. In addition, it also offers an ecommerce platform, a proprietary wallet and bank account; apart from offering a platform for bill payments and UPI transfer.

As of March 2021, Paytm had a client base of 33 crore end-user customers on its platform apart from 2.10 crore registered merchants. In the latest round of funding by T Rowe Price, Paytm was valued at over $22 billion and the IPO is expected to value Paytm in the range of $25-$30 billion. This would make it among the most valuable digital property after Flipkart.

The founder, Vijay Shekhar Sharma holds 14.61% in Paytm, although he will be de-classified as promoter after the OFS. Other marquee investors in Paytm include global big guns like Softbank, Alibaba, Antfin Netherlands and the redoubtable Berkshire Hathaway, owned by
Warren Buffett; regarded the greatest equity investor of all time.

Some stunning numbers behind the Paytm story

If one company is synonymous with digital money and shift to a cashless environment, it is Paytm. Here are some amazing statistics about Paytm, just to give an IPO perspective.

• Paytm was launched in 2005 with $2 million as seed investment. As the company goes for its IPO, it is estimated to be valued at close to $30 billion. In terms of CAGR returns, that is a stunning 82% returns, consistently over last 16 years.

• Paytm literally is an abbreviated form of “Pay Through Mobile”. Vijay Sekhar Sharma first got the idea of Paytm when he observed vegetable vendors in China accepting small micro payments from customers digitally. That is how the idea of Paytm was born.

• Paytm platform puts through nearly 50 lakhs orders on a daily basis and it processes over 1 crore orders on a monthly basis. There are over 7 million merchants in India who actively use Paytm QR code to accept payments digitally.

• The Paytm platform has over 45 crore registered users while the Paytm Bank has 6 crore banking customers. Paytm was one of the biggest beneficiaries of demonetization, adding nearly 2 crore active accounts just during that period.

• Due to its massive customer interface, Paytm is a sought after branding partner for banks. Both, Citibank and HDFC Bank already have co-branded credit cards issued in association with Paytm.

Losses continue at Paytm but they are narrowing

Considering the huge front-ending of costs in the digital ecosystem business, Paytm continues to make steep losses. However, the good news is that the losses are narrowing as can be seen from the tabular analysis below.
Particulars FY-21 FY-20 FY-19
Total Assets Rs.9,151 crore Rs.10,303 crore Rs.8,767 crore
Total Revenues Rs.3,187 crore Rs.3,541 crore Rs.3,580 crore
Net Profits Rs.(1,701) crore Rs.(2,943) crore Rs.(4,231) crore

The losses have narrowed consistently between FY19 and FY21 from Rs4,231cr to Rs1,701cr. This has been triggered by two factors. Firstly, Paytm has been aggressively trimming costs and cash burn on a monthly basis. Secondly, a lot of publicity and advertisement costs were front-ended. Now the company is deriving the benefits with peak spending already done.

One challenge for Paytm will be the low asset turnover ratio. That will need a substantial improvement in the gross order value (GOV).

How should investors approach the Paytm IPO?

The fresh issue of Rs8,300cr will be used to expand the franchise. it will be invested into acquiring customers, strengthening the payment system, inking strategic co-branding partnerships, inorganic purchases of niche businesses and very focussed high-end technology investments. These are likely to be value accretive for Paytm digital ecosystem.

Paytm would take comfort from the 38X response to the Rs9,375cr IPO of Zomato, with a very strong institutional demand. Institutional appetite is expected to be robust in the Paytm IPO too. The real crux will be how Paytm leverages the advantages of having ownership of the complete digital ecosystem comprising digital money, payment systems, online commerce and money transfers. That will be the post-IPO challenge.

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