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Paytm IPO: Details, Analysis, Review, Business Model and More

Paytm IPO: Details, Analysis, Review, Business Model and More

Last updated: 01 Nov, 2021 | 01:29 pm

Paytm IPO: India's biggest IPO is subscribed 0.34 times till now

One97 Communications Limited (Paytm) IPO opens for subscription on 8th November. The company is looking to raise up to Rs 18,300 crore through the public issue. Here are the details:

About the IPO

One97 Communications Limited IPO Date: 8 November - 10 November 2021

One97 Communications Limited IPO Price band: Rs 2,080 - Rs 2,150

Issue Size: Rs 18,300 crore (Fresh Issue of Equity shares aggregating up to Rs 8,300 crore and Offer for sale up to Rs 10,000 crore)

Post Issue Market Cap - Rs 135,111 crore - Rs 139,379 crore

Reservation: QIB 75%, Retail - 10%, NII 15%

Bid lot: 6 shares, and in multiples of 6 shares

Objectives of the issue

The net proceeds from the IPO will be utilized for the following purposes :

  • General corporate purposes
  • Investing in new business initiatives, strategic partnerships, and acquisitions - Rs 2,000 crore
  • Growing and strengthening the company's ecosystem, including acquisition and retention of consumers and merchants and providing them with greater access to technology and financial services - Rs 4,300 Crores

About Paytm

  • One97 Communications Limited was incorporated in December 2000, and today, it is India's leading digital ecosystem for consumers and merchants.
  • The services offered by the company are Payment Services, Commerce and Cloud Services, Financial Services.
  • As of June 2021, they have a consumer base of 33.3 crore and 2.1 crore registered merchants with them.
  • Paytm was launched in 2009 as the first mobile-first digital payments platform to enable cashless payments for Indians that enabled them to make payments from mobile phones. They now have the largest payments platform in India based on many consumers, transactions, and merchants.
  • Paytm is India's most valuable payments brand with a brand value of $6.3 billion.
  • Paytm is also the only company in the country that together with its affiliates owns each layer of the payment stack. It offers services such as Paytm Wallet, Paytm QR, Paytm Soundbox, Gold investments and Fixed Deposit, Paytm Postpaid, Merchant Cash Advance, and FASTag.

Listed Peers

There are no listed entities similar to the line of business and comparable to Paytm's scale of operations, hence the comparison is not possible.

Services offered

This is just a snapshot of Paytm offerings, we did a deep dive of Paytm business segments in one of our previous blogs.

Financials

  • Paytm is not a profit-making company and is in the growth stage where the companies have to burn cash to acquire more users.
  • The company's revenue from the operation has declined in the last three financial years. The revenue reported by the company was Rs 3,232 crore, Rs 3,280 crore, and Rs 2,802 crore for FY19, FY20, and FY21, respectively.
  • In FY21, the losses have become less than half of what they were FY 19. From Rs 4,230.9 crore loss in FY19, it has come down to Rs 1,701 crore in FY21.
  • In FY19, FY20, and FY21, revenue from payment and financial services accounted for 52.5%, 58.1%, and 75.3% of its revenue from operations.

USPs

Company can address large market opportunities - The market segment the company serves has a massive scale and growth, and it is highly underpenetrated. The company has the potential of technology to grow the industry. Its ecosystems allow them to address these multiple large market opportunities at scale and give them multiple growth vectors.

Trusted brand - The brand stands for Trust, Convenience, and Transparency. They are India's most valuable payments brand. Even with competition, Paytm remains the easiest way to transact across multiple methods.

Technology DNA - Paytm has an average engineering and technology team of 2,550 members in FY21. Their technology stack is built ground up and integrated across all aspects of their ecosystem that allows them to ensure they are able to launch products and services quickly, build various features, ensure system stability, offer integrated and synergistic products, handle large scale and provide the highest success rates. 

Deep insights of Indian merchants and consumers - Paytm has developed unparalleled insights into the way Indian consumers save and spend, and the way merchants operate their businesses. Each transaction on its platform provides insights that help them improve personalization for their consumers and merchants. It improves consumer and merchant experience and the quality of their engagement in the ecosystem. 

Growth Potential

Grow merchant and consumer base  - The company has a mission to bring half a billion Indians into the mainstream economy, and to do so, they will continue to grow their consumer and merchant base. They plan to continue to increase the engagement and retention of their consumers and merchants in their ecosystem by offering them better products.

Improve merchant partnerships - They plan to expand their merchant network across different cities and towns in India. At the same time, they will deepen their partnerships with existing merchants. They will continue to expand their payment services’ offerings for merchants and innovate to offer a wider selection of commerce and cloud services.

Scale financial services - It plans to rapidly scale up financial services and expand access to financial services through deep tech-led solutions. Paytm will continue to leverage its partnership with Paytm Payments Bank to expand the suite of banking solutions for consumers and merchants.

International markets - The company believes there is a large opportunity for Paytm to leverage its technology infrastructure and expand to international markets. In 2017, they piloted their bill payment services in Canada, and in 2018 they launched PayPay, a leading digital payments and financial services company in Japan. It will continue to explore international opportunities where it can either launch its merchant services or collaborate with partners to launch consumer-facing platforms.

Risks

Unable to attract merchants - The company depends on its ability to maintain and grow its relationship with existing merchants. If it is unable to attract merchants, grow its relationships with existing merchants, and increase transaction volumes on different platforms, it will impact the cash flows and prospects could be materially and adversely affected.

Slow consumer growth - Just like merchants are important to the company, similarly, consumers play an essential role in its growth. If they fail to retain consumers, attract new consumers, expand the volume of transactions from consumers, or if consumer acquisition costs increase, it will impact the company's finances.

Technology infrastructure - Technology is critical to a company's success, and it is important all participants can access its platforms, at all times. The failure to maintain or improve technology infrastructure could harm the business and prospects. 

Dependent on third parties - Paytm relies on third parties for certain aspects of their business, which creates additional risk, and the failure of third parties to comply with legal or regulatory requirements could impact the company. 

Paytm IPO: INDmoney Analysis

Over the years, Paytm has grown to become India’s leading digital app with over 337 million registered consumers and over 21.8 million registered merchants (as of Jun 30, 2021). The company’s topline (consolidated revenues) has declined at a rate of 6% annually over the last three years. However, the company’s losses narrowed from Rs 4,231 crore in FY19 to Rs 1,701 crore in FY21. The company’s GMV has increased by 33% annually over the last three years. 

Investors should bear in mind that Paytm is currently a loss making company. Further, it has indicated that it expects to continue to incur losses for the foreseeable future. The company has said that it would continue to focus on “market share.”

Valuation on the basis of P/E is not possible, given losses. Paytm is expected to have a Market Cap of Rs 1.40 lakh crore post-listing. At this mcap, the issue is priced at about ~48 times Price/ Mcap ratio. This is extremely expensive. However, given a fancy for fintechs, the company could command a high valuation. 

Given factors such as decline in revenue, losses over the last three years, market leadership status, strong growth in GMV, and positive sentiment due to marquee investors, investors with a higher risk appetite who wish to take exposure to a leading fintech company could consider investing in the issue.

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