Paytm IPO Update: Paytm IPO Date, Analysis & News (2021)

Paytm IPO news: Paytm filed its Draft Red Herring Prospectus (DHRP) on July 15.

Following are the highlights from the DHRP:

Paytm IPO Issue size: Rs 16600 cr (Rs 8300 cr via fresh issue and Rs. 8300 cr via offer for sale).

Paytm IPO date: Date is still to be disclosed but the IPO is expected to be launched in the coming weeks.

Use of funds: Paytm will infuse only the funds raised via fresh issue i.e. Rs 8300 cr. The funds via offer for sale i.e. Rs 8300 cr will be used to pay out some of the existing investors. Paytm will use the funds for the following purposes:

Paytm Financials:

Till Paytm releases more information about its IPO, let’s take a deep dive into Paytm’s business and then try to understand the complex business models of the company.

Paytm business segments:

1. Paytm Payments
2. Paytm Credit
3. Paytm for Business
4. Paytm Money
5. Paytm Insurance
6. Ecommerce
7. Internet Commerce & Cloud
8. Others

Paytm Payments:

There are four key offerings in this segment:

• Paytm Wallets: Paytm allows the payments of recharges and bills and for that it collects a commission from the network provider. Paytm also earns interest on the money that we keep in the e-wallet, Paytm opens an escrow account with one of the partner banks and earns a certain interest mutually decided between them.
• Paytm Payments Bank: Paytm Payments Bank offers savings and current accounts with a debit card and the ability to make fast and easy payments. Paytm’s payments bank has around 6 cr savings account holders with over $430 million in deposits. They offer IMPS, NEFT, RTGS and a virtual debit card to make payments. Currently, they are not profiting as much as they can from these deposits as they cannot lend this money. They have to invest these deposits in low yielding debt securities. To monetize this segment even better, they will have to convert to a small finance bank.

  

• UPI: Initially, Paytm was focused on the UPI business but realizing that it is a losing game, UPI business grows only when huge marketing money is spent but even then Paytm or other UPI apps have not been able to find a way to monetize this segment.

  

• FASTag toll collection: FASTags is a great business opportunity which Paytm capitalized before anyone. Paytm has more than 50 lakh FASTags and It is estimated that Paytm received around Rs. 69 cr in FASTag security deposits. The company can use this to invest and earn interest on. Paytm Payments Bank is looking to convert to a small finance bank and FASTag has taken it one step closer to that goal as the capital for a small finance bank should be 200cr.

Paytm Credit: 

Paytm Credit tech has started to make progress in the credit business. They have their credit segment divided into two parts, Merchant credit and consumer credit. Consumer credit has offerings like

• Paytm postpaid i.e. 1 month credit limit
• Personal loans, 
• Credit cards in partnership with SBI

They have partnered with various funding providers such as banks and NBFCs and Paytm’s data edge allows it earn healthy unit fees of around 2-6%. According to media reports, Paytm had 70 lakh users for their Paytm postpaid product as of Nov-20. This number is expected to be 1.5 cr now. Paytm also aims to issue 5 lakh credit cards in FY22. Paytm also has a They don’t have much competition in the credit tech space. The only major competitor would be Bajaj Finance.

Merchant credit: Paytm has approximately 2 cr merchants. Active and verified merchants are offered credit based on their wallet activity,

Paytm for Business:

Paytm has 35 cr users and 2 cr merchants on its platform. There are two types of merchants, Offline and online.

• Offline merchants: Paytm offers QR code, PoS and a sound box to merchants. While receiving payments through QR code is free, Paytm earns a fee of 1.8-2% from merchants on payments through PoS devices.  A sound box is a speaker which announces the amount received whenever the payment is made. Paytm has 5 lakh merchants using this sound box. It earns a monthly rental of Rs 100 for this sound box. Given the thin margins in the payments business, Paytm has looked to increase the merchant wallet share by offering credit (based on digital payment activity) to merchants with longer vintage and healthy Paytm activity. It has also started to offer software solutions for its merchant/corporate customer base.

  

Paytm sees tough competition in the offline merchants acquisition from the likes of mSwipe, Pine Labs and BharatPe. mSwipe and Pine Labs are competing in the PoS space and BharatPe and PhonePe are competing in the QR code space.

To drive merchant engagement and monetization, Paytm’s strategy is to get the merchant first started with a QR code. It then encourages smaller merchants to upgrade to a sound box. Sound box is a great tool for merchant retention. Bigger merchants are encouraged to upgrade to smart PoS devices.

• Online Merchants: Paytm offers online merchants a payments gateway platform. The platform powers online checkout for some of India's leading online merchants like Flipkart,  IRCTC, Swiggy, Zomato, Big Basket and Uber. This product is a vendor payments tool that allows customers to have a consolidated view of all vendor payments and an easy-to-use interface for making payments. The platform processed -$18 Bn worth of transactions in FY21. This has grown at -80% CAGR over FY18-21

Paytm competes with a host of payment gateway services like Razorpay, Cashfree, BillDesk, CC Avenues, MobiKwik etc. 

Paytm also has software solution offerings like Payroll processing, Salary accounts, ERP, CRM etc in this space.

Paytm Money:

Paytm Money is an investment distribution platform for savings and investment products. Its offerings are:

• Direct mutual funds (no distributor commission, low expense ratio). This has helped drive user acquisition and made Paytm the largest originator of new SIPs in India. Paytm Money has built integrations with asset management companies and offers deep insights on the funds on offer. The platform has clocked over Rs 5000 cr in mutual fund investments under the direct code. 
• Stocks: Paytm recently launched its tech-enabled broking business. It offers retail investors a no-frill demat account. The platform charges Rs 300 for account opening and annual maintenance each and Rs 10 for a derivative trade. Everything else is free.
• Pension schemes: A fee is earned on investments through their platform
• Digital gold: A fee is earned on investments through their platform.

Paytm Money has 70 lakh users and 2 lakh demat accounts. Paytm is looking to have a 150% growth in users and have 4 lakh new demat accounts added in 2021.

This space has stiff competition. Paytm Money sees direct competition from Zerodha, Upstox, Groww and INDmoney.

Paytm Insurance: 

Paytm's insurance distribution business is in its early stages of revenue scale-up. Paytm offers insurance products from 30+ insurers across term life, health, motor insurance, and micro-insurance for small-ticket electronics/ smartphones. This business competes with PolicyBazaar. It is expected Paytm's take-rates would be lower than PolicyBazaar's 20% take-rate. Paytm has also announced the acquisition of a general insurance player. The acquisition is yet to be approved by the regulator but Paytm expects to launch micro-insurance products that get bundled with its ticketing, payments platforms, and other use cases. India has a large insurance gap/ under penetration when compared to global peers.

The micro-insurance business can be compared with what Acko and Digit offer on cab rides, food delivery, mobile repair, and ticketing. 

Ecommerce:

Paytm mall has narrowed down its losses by 60% to Rs 479 Cr in the FY20. The company had reported Rs 1,171 Cr in loss in FY19, a 35% reduction from FY18.

However, the reduction in losses comes with a 27% decrease in revenue. The company recorded Rs 703 Cr in FY20 as compared to Rs 968 Cr in FY19. In FY18, the company had reported a revenue of INR 775 Cr.

Internet Commerce and cloud: 

In the internet commerce space, Paytm has offerings like flight, movie, bus, train and events ticketing. In 2018, Paytm launched an AI-powered cloud computing platform made in India and offers a suite of business-centric apps. The Paytm AI Cloud processes and stores all consumer data locally in servers located in India while conforming to the security and privacy standards, said the company.

Others:

There are other miscellaneous segments like

• Gaming
• Advertising etc.