Founded in 2010, by Vijay Shekhar Sharma, Paytm (One97 Communications Ltd.) is a financial services company that offers a wide range of services like digital payments, recharge, online shopping, etc. Today Paytm needs no introduction as it has become India’s leading digital ecosystem company. Paytm in 2010 was initially started as a recharge platform, and later countless verticals were added to it. Paytm is regarded as one of the biggest start-ups in India and with its IPO coming, investors must be very eager to subscribe to it. Paytm is planning to raise Rs. 18,300 crores, the biggest IPO in the history of India. The IPO shall be open for subscription from November 08 to November 10, 2021. If you are confused about whether to apply for this IPO or not, this article may guide you to a sound decision.
Paytm operates mainly 3 businesses, which are payment services, financial services, and commerce & cloud services. Payment and financial services alone contribute more than 75% of Paytm’s revenue. Due to the growing enterprises and consumer awareness about digital transformation, the scenario of payments and transactions is changing rapidly in India. The mobile payments market in India was valued at close to $125.6 billion in the year 2019 and is expected to reach $1,348 billion by 2027, registering a whooping CAGR of 35%. Indian digital payment transactions are projected to grow at a CAGR of 20.20% in the next 5 years. The number of UPI transactions in India is also witnessing rapid growth. India’s mobile wallet industry is also growing at a tremendous rate and is projected to grow at a CAGR of 150% to reach $4.4 billion by the year 2022. Apart from the mobile payments sector, all other digital services offered by Paytm have also witnessed strong growth in recent times. As Paytm is operating in the giant market of digital payments and services which is estimated to grow at a rapid rate, the market for Paytm is only going to get bigger with time. Although Paytm faces an immense level of competition from its peers like Phonepe, Mobikwik, etc., it has emerged as the market leader in this still expanding digital payment sector.
One97 Communications, the parent company of Paytm is India’s leading digital ecosystem for consumers and merchants as it has emerged as the largest payment platform based on the number of merchants, consumers, and the number of transactions carried on the platform. Paytm has a strong consumer base with over 337 million registered users and over 22 million registered merchants on its platform. Paytm offers its services in 11 Indian languages and offers online use-cases, which is one of the reasons for its huge popularity. Paytm offers a wide range of payment services to consumers and merchants to make and receive payments, lifestyle commerce services, including but not limited to travel, entertainment, gaming, among others. Paytm also offers software and cloud-based services to merchants such as vendor management, promotions, business management, banking services, etc. The financial services arm of Paytm also offers wealth management through the Paytm Money App with total Assets under Management (AUM) being Rs. 5,200 crores. According to the Kantar Brandz India 2020 Report, Paytm is India’s most valuable payments brand across India.
Investors must also have a look at the financials of Paytm before taking a call to whether to invest in it or not.
- Revenue Growth: The revenue of Paytm, particularly from commerce and cloud services dipped 38% this year, mainly due to disruptions caused by the Covid-19. This also led to an overall fall in the revenue of the company from Rs. 3,541 crores in 2020 to Rs. 3,187 crores in 2021, a dip of around 10%.
- Net Profit Growth: The net profit/(loss) has been improving significantly over the last few years. Paytm reported a net loss of Rs. 1,704 crores in 2021 as compared to a net loss of Rs. 2,943 crores in 2020. This improvement in the company’s profit is primarily due to a reduction in expenses and spending on discounts and other promotions.
- Cashflow from Operations: Paytm has been witnessing negative cash flow from operations for several years. Negative cash flow from operations of Paytm stands at Rs. 2,083 crores for 2021, which is only a marginal improvement over Rs. 2,377 crores negative cash flow for 2020.
- Asset Growth: Paytm has seen a downfall in total assets due to a reduction in the right to use assets and investments. Several lease contracts of Paytm with respect to land and office premises have ended this year. The company also reduced its investments in fixed deposits. Thus, the total assets of Paytm fell from Rs. 10,303 crores in 2020 to Rs. 9,151 crores in 2021.
|Revenue||Rs. 3,580 crores||Rs. 3,541 crores||Rs. 3,187 crores|
|Profit||(Rs. 4,236 crores)||(Rs. 2,943 crores)||(Rs. 1,704 crores)|
|Total Assets||Rs. 8,767 crores||Rs. 10,303 crores||Rs. 9,151 crores|
|Cashflow from Operations||(Rs. 4,496 crores)||(Rs. 2,377 crores)||(Rs. 2,083 crores)|
Details of the IPO
|IPO Opening Date||November 08, 2021|
|IPO Closing Date||November 10, 2021|
|Issue Size||Rs. 18,300 crores|
|Price Band||Rs. 2,080 – Rs. 2,150 per equity share|
|Face Value||Rs. 1 per equity share|
|Market Lot Size||6 shares ((Minimum Investment: Rs. 12,900, & Maximum Investment: Rs. 1,93,500)|
|Issue Type||Book Building Issue|
|Listing At||BSE, NSE|
Important Tentative Timetable
|IPO Open Date||November 08, 2021|
|IPO Close Date||November 10, 2021|
|Basis Allotment Date||November 15, 2021|
|Initiation of Refund||November 16, 2021|
|Credit of Shares to Demat Account||November 17, 2021|
|IPO Listing Date||November 18, 2021|
Competitive Strength of Paytm
- Paytm has a high level of brand awareness and popularity among users due to its strong marketing and PR campaigns.
- Paytm is one of the only 11 entities which got the license from the RBI to run a payments bank in the year 2015.
- Paytm is continuously involved in innovating its products and adding new services to its platforms. Recently it introduced the all-in-one POS device, QR scanning, and Paytm Business Khata.
- Paytm has developed an ecosystem that allows it to address multiple large market opportunities at the same time.
- Paytm is blessed with a team of experienced promoters and a strong management team.
- Paytm has the largest user base in the digital payments sector and thus has deep insights into Indian merchants and customers.
Risk Factors in the IPO
- Relationship with Merchants: Paytm is highly dependent on its ability to maintain and grow its relationship with the existing and potential merchants on its platforms. It is a very crucial segment of Paytm’s business model.
- Dependency on one segment for Revenue: The majority of the revenue of Paytm is derived from its payment services, and all other services contribute negligently to the total revenue. Paytm’s dependency on only one business segment increases the risk for its investors.
- History of Losses: Paytm has a history of losses. Paytm is yet to turn cash positive and generate net profits. Additionally, Paytm does not expect to generate profits in the near future.
- Covid-19 Impact: Paytm was hard hit by Covid-19, as both its revenue and total assets fell during the pandemic.
- Risk to Security & Privacy: Paytm manages confidential and sensitive information on its platforms and thus it is exposed to the risk of security and privacy.
- Heavy Reliance on Partners: Paytm relies heavily on financial institution partners to offer financial services and products to its users. Any failure to maintain this relationship could adversely impact Paytm’s business operations.
Paytm IPO is one of the most awaited IPOs of the year. Looking at the history of Paytm and its business overview, it looks like a promising investment option. But the financials of the company tell a different story. With a prolonged history of losses and no near-future hopes to turn profitable, Paytm IPO may cast doubt in the minds of the investors. Although Paytm suffers from some serious limitations and weaknesses, it has the ability to achieve great heights in the future.