Paytm is currently India’s leading digital ecosystem for consumers and merchants, with over 337 million registered consumers and over 21.8 million registered merchants as of June 30, according to a report by management consulting firm Redseer. The company has increased the size of its IPO by Rs 1,700 crore from the previous estimate of Rs 16,600 crore as existing shareholders, including Alibaba’s Ant Financial and Softbank, want to sell more shares.
What is the plan?
Paytm wants to increase Rs 8,300 crore through new issues, and the remaining Rs 10,000 crore through an offer to sell (OFS) from the company’s existing stakeholders. 75 percent will be reserved for Qualified Institutional Buyers (QIB), 15 percent for Non-Institutional Investors (NII) and the remaining 10 percent for retail investors during issuance.
About half of the offer to sell is made by Ant Financial and the rest by Alibaba, Elevation Capital, Softbank and other existing shareholders.
Paytm’s red herring prospectus data shows founder Vijay Shekhar Sharma to sell shares worth Rs 402 crore ($ 53 million), but the biggest winner will be investor Alibaba since its subsidiaries – ANT Group and Alibaba.com – will sell shares worth Rs 5,488 crore ($ 733 million) in total. While Ant Group will sell shares worth Rs 4,700 crore, Alibaba.com will sell shares worth Rs 784.8 crore. Note: Ant Group owns a little more than 29% of One97 Communications and will have to reduce its stake below 25%, while Alibaba holds 7.2% of the capital. The collective amount represents almost 30% of the size of Paytm’s IPO. In accordance with Sebi regulations, no entity can hold more than 25% in a âprofessionally managed companyâ.
SoftBank, which owns 19.6%, will sell shares worth Rs 1,689 crore, while Elevation Capital, which owns 17.2% of the capital, will sell shares worth Rs 2,030 crore.
What will the offer be used for?
The company intends to use the funds to strengthen the Paytm ecosystem by acquiring and retaining consumers and merchants, as well as investing in new business initiatives, acquisitions and strategic partnerships. The company will also donate part of the proceeds to its general insurance business Paytm Insurtech (PIT).
But how does PayTm make money?
Paytm started in 2010 as a prepaid mobile top-up platform and then grew into a one-stop destination for all types of bill payments as well as a payment bank. Today, it has three main vertical payment services, commerce and cloud services and financial services, while the app serves as a super app that allows you to make payments, top up your digital wallet , play fantastic sports, shop online, buy stocks. and mutual funds, etc.
Redseer’s data shows that Paytm is the country’s largest payment platform with a total gross market value (GMV) of over Rs 4 lakh crore in the past fiscal year. Its share in all mobile payments transactions is 40%, while in the wallet payments segment it reaches a whopping 70%.
For UPI transactions, its market share is only 14%. Currently, PhonePe and Google Pay dominate the UPI market, while Paytm ranks third in terms of total volumes and value.
Where he really makes money is in the peer-to-merchant (P2M) segment. Here he owns a 50% share. Activity grew 33% in one year and the total number of traders tripled from 7 million to over 20 million. Paytm makes money through transaction fees and take rates charged to merchants based on GMV percentage, while also charging customers convenience fees.
There is a Paytm shopping center: sellers are allowed to list and sell their products here for which Paytm charges sellers a commission.
Online top-up service: Paytm charges a 2-3% commission on each top-up.
Invoices: Since Paytm allows customers to pay their bills for water, telephone, rent, electricity, etc., it charges a commission from these service providers
Digital Gold: Paytm has partnered with gold refiner MMTC-PAMP to launch Digital Gold so customers can buy, sell and store gold digitally.
Payment Bank: Paytm allows a customer to open a digital current and savings bank account without a deposit. It gives 4% interest on savings account deposits and an overdraft facility for the current account. Paytm makes money through cross-selling. He has partnered with other financial institutions and banks to sell their products and services (like insurance, investments, loans, etc.) with his own and earns commissions. There is also an interest arbitrage where Paytm deposits money with other banks / government deposits where the interest rates are higher.
Loans: Through its lending vertical, including Paytm Postpaid, Paytm has disbursed three million loans to date.
Insurance: It has an insurance market with auto, life and health insurance products, as well as policy and claims management services.
Wealth management services: it includes mutual funds, stocks, etc.
Other key activities include money transfer, fraud protection, and cloud businesses.
Paytm became the second largest booking platform in India last year selling movie tickets on 5,700 screens. Paytm charges merchant transaction fees and consumer convenience fees.
Brokerage Perspective: Should You Invest In The IPO?
Most analysts believe that if one is considering investing in Paytm then one needs to track how Paytm will monetize its existing customer base and its path to profitability.
Paytm would be comforted by the 38X response to Zomato’s Rs 9,375cr IPO, with very strong institutional demand. Institutional appetite should also be robust in Paytm’s IPO. The real crux will be how Paytm will leverage the benefits of owning the complete digital ecosystem including digital currency, payment systems, online commerce and money transfers. That will be the post-IPO challenge, “said the IIFL brokerage firm in a note.
According to Yes Securities, valuation will always be an important aspect to consider, while Aswath Damodaran, professor of finance at the Stern School of Business, NYU said that “investing in a business when Paytm bet depends a lot more. management that determines a way to grow, while improving catch rates at the same time. “