As you would know that the IPO of Paytm’s parent company One 97 Communications Limited is going to open on 08 November 2021. So in this article, you will learn about the RHP (Red Herring Prospectus) of Paytm.
Paytm IPO details
| Paytm IPO Opening Date | 08 November 2021 |
| Paytm IPO Closing Date | 10 November 2021 |
| Offer for sale | ₹10,000 crores |
| Issue Size | ₹18,300 crores |
| Fresh Issue | ₹8,300 crores |
| IPO Price | ₹2080 to ₹2150 per equity share |
| Face Value | ₹1 per equity share |
| Listing Date | 18 November 2021 |
| Basis of allotment date | 15 November 2021 |
| Market lot | 6 |
| Minimum Order Quantity | 1 Lot |
| Listing at | NSE, BSE |
| Issue Type | Book Built issue IPO |
About Paytm Company
One 97 Communications was established in the year 2001 by Mr. Vijay Shekhar Sharma. This company was mainly involved in mobile base services such as music, messages, and other SMS-based applications.
Paytm was introduced in the year 2009 as a prepaid mobile and DTH recharge platform with an initial investment of 2 million dollars.
Today many services come under Paytm like Paytm wallet which is a semi-closed wallet, Paytm mall which is for online shopping, online ticket booking for travel and movies, bill payments, Paytm gold which is an online gold platform and Paytm Money which is for stockbroking and investment.
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Many world-famous investors have invested in Paytm such as Alibaba Group & Financial which runs Alipay in China, Softbank, SAIF Partners, Warren Buffett’s company Berkshire Hathaway, T Rowe Price, and Discovery Capital.
Paytm Payment Bank, which is the largest payment bank in India, holds a 49% stake in Paytm.
Apart from this, Paytm also has a subsidiary in Singapore in the merchant payments and e-commerce space, which according to June 2021 data, Paytm has more than 337 million retail customers and 22 million merchants.
Paytm Revenue Sources
There are mainly 2 revenue sources of Paytm:
- Payment and Financial Services
- Commerce and Cloud Services
Payment and Financial Services
Payment business and financial services offered to retail customers are included in this vertical. The services and products sold to merchants like Paytm Soundbox and POS are also a part of this vertical.
Commerce and Cloud services
Paytm’s e-commerce business comes under this vertical like online shopping, ticket booking, etc. Software cloud and advertising services offered to merchants are also included in this segment.
Overview of Paytm from Consumer Side
If we talk about the consumer side, then high-frequency uses such as bill payment and money transfer also help a lot in acquiring new customers.
Establish products such as Paytm Wallet, Paytm Postpaid, Paytm bank saving account, and Fastag help in customer engagement and retention. Paytm acquires users from all these services.
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They may also be offered to monetize services later on such as personal loans, investments, and insurance.
Overview of Paytm from Merchant side
If we look from the merchant’s point of view, the store QR code and online payment gateway help in onboarding new merchants.
Products such as Paytm Soundbox, POS devices and Paytm business payments, etc help a lot in engagement and retention.
After onboarding these merchants, monetized services can also be provided such as merchant landing, advertising, and cloud services.
Paytm is India’s largest payment platform, which had a GMV (Gross Merchandise Value) of Rs 4033 billion in FY21.
Paytm has an overall market share of more than 40% in mobile payment transactions and the company enjoys a market share of 65% to 70% in wallet payments.
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Apart from all these, there are other products of Paytm such as Paytm postpaid which is a buy now and pay later product.
Apart from this, Paytm Fastag, Fixed Deposit, Debit and Credit Cards, etc. are also an important part of its business.
Paytm has a 55% stake in Paytm first games. It is an online gaming platform that offers Rummy and sports fantasy games.
According to the data till June 2021, Paytm First Games has more than 28 million users. So this was a detailed overview of Paytm’s business.
But after this, we also have to know about the industry in which Paytm operates.
Objective of IPO of Paytm Company
These are the objects of the company behind this IPO of Paytm, to provide an exit to the investors who have already invested in Paytm.
Investing Rs 4,300 crore to strengthen the Paytm ecosystem, in which the company will focus on retaining existing customers and merchants and on new customers and merchant acquisition.
2000 crore to be invested in new business innovation, acquisition, and strategic partnership and for some general corporate purposes.
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So these were some of the objects due to which the company is bringing its IPO.
Overview of online payment and financial services industry
| Market Opportunity (US$ Billions) | FY 2021 | FY 2026 | CAGR |
|---|---|---|---|
| Travel Ticketing | 36 | 60 | -9% |
| E-tail | 41 | 140-160 | 28%-31% |
| Online food delivery | 2.7-3 | 13-14 | 36% |
| Online Gaming | 2.8 | 12-13 | 34%-36% |
| Film Ticketing | 2.6 | 3.5 | 5% |
| E-grocery | 3.7 | 22-27 | 43-49% |
| India Advertising | 9.3 | 20-25 | 20% |
Mainly these factors responsible for the growth of the internet services sector in India are the high working-age population, high rate of urbanization, rise in digital adoption, and internet penetration.
It is expected that due to all these factors, there will be approximately 1 billion internet users in India by the year 2026.
It is expected that by the financial year 2026, the total mobile payments market will also grow 5 times to reach $ 3.065 trillion.
| Millions of users | FY 21 | CAGR | FY26 |
|---|---|---|---|
| Smartphone users | 500-550 | 10% | 800-850 |
| Active Internet users | 400-450 | 16% | 900 |
| Access to internet | 650-700 | 8% | 950-1000 |
If we talk about mobile payment from consumer to merchant, then the expectations are that by the financial year 2026, it will grow by 7.6 times to reach 800 million dollars.
Apart from this, the total payment value accepted by the merchant will also grow 4 times to reach 1.100 to 1.400 trillion dollars by the financial year 2026.
The market opportunities in the Internet sectors are also growing very fast, it is expected that the unique online users who are 250 to 300 million in the financial year 21 will increase to 700 to 750 million by the financial year 26.
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If we talk about some of the fastest-growing sectors, then 28% to 31% CAGR growth in e-commerce from financial year 21 to the financial year 26.
Growth of 43% to 49% CAGR is being expected in online grocery and 36% CAGR growth in online food delivery.
Some sectors have a high presence in advanced economists such as USA and China, but in India, they have not yet reached a large segment of the service population such as landing, credit card, insurance, stock market participation, etc.
| Financial Industry | India | China | USA |
|---|---|---|---|
| Credit Card penetration | -4% | 53% | 328% |
| % Population participating in stock market | 3% | 13% | 55% |
| Household debt as % of GDP | 11% | 55% | 75% |
| Retail Mutual Fund (AUM as % of GDP) | 16% | 19% | 145% |
| Insurance premium as % of GDP | 3.8% | 4.3% | 11.4% |
There is still a lot of growth potential in the consumer-facing segment of the financial services industry in India. So this was an overall overview of the online payment and financial services industry.
Financial Valuation of Paytm
Let’s take a look at the company’s financials. In this table that you are seeing, all these figures are given in crores.
| Paytm Valuation | FY19 | FY20 | FY21 |
| Total Assets (₹ in crores) | 8766.80 | 10303.10 | 9151.30 |
| Total Revenue (₹ in crores) | 3579.70 | 3540.70 | 3186.80 |
| Profit After Tax (₹ in crores) | -4230.9 | -2942.4 | -1701 |
First of all, if we compare the financial year 20 end with the financial year 21 end, then we can see that there is a decline in both total assets and total revenue.
Talking about assets, it declined from 10303.10 to 9151.30 in the financial year 21. Similarly, there is also a decrease in the total revenue from 3540.70, this figure has come down to 3186.80.
If you look at the profit after tax, then this huge loss figure is visible in the financial year 20. There is also a loss figure in the financial year 21, but the losses have decreased in comparison to the financial year 20.
From 2942.4, this figure reached 1701 in the financial year 21.
| Debt to equity | 0.51 |
| 2-year sales CAGR | -5.65% |
| Earning per share | -28 |
| Current ratio | 2.71 |
After financial, know about the pros and cons of investment of Paytm company.
Pros of Investing in Paytm
Paytm’s retail and merchant consumer base is its biggest strength. Due to the strong network effect of Paytm’s business model, its business can grow faster and more people can use it.
This consumer base of Paytm can also provide a lot of cross-selling opportunities because Paytm has many more products for both retail and merchant customers.
Apart from this, a great strength of Paytm is that its service is used in daily life such as bill payments, money transfers, etc.
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Paytm’s services and products are technology-based which makes it capable of rapid growth and scale-up.
Paytm has a lot of potentials to expand into small shops and general stores, apart from this, it is a segment where financial and digital services have not yet reached as well.
The strong brand image of Paytm can prove to be very helpful for its expansion in this segment.
Cons of Investing in Paytm
Even after having so many products and services, the company is still not profitable and may continue to do so in the future as the company is aggressively utilizing its resources to maintain its growth.
The company is working in many different segments simultaneously, this increases the customer reach of the company but due to this, it becomes difficult for the company to create a specific niche and focus well on specific key areas.
The third point for Paytm is strong competition. Paytm company will have to face strong competition from big players like HDFC Bank, Bajaj Finance, etc in the financial services segment.
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Apart from this, technological disruptions such as Zerodha, Groww and Navi technologies are also giving a tough competition to Paytm.
Apart from this, companies like MakeMyTrip in the travel segment, BookMyShow in event shows, and Amazon in e-commerce are disrupting its market.
Therefore, working effectively in all these segments and becoming a winner is the biggest challenge of Paytm.
Apart from this, because the company’s model is technology-based, nowadays technological disruption always remains because new companies bring advanced ideas and technologies which can have a huge impact on the business of existing companies.
In such a situation, Paytm will also have to keep in mind the technological disruption.
So this was the complete review of Paytm’s business and IPO. Let us remind you that this article is for educational purposes only and there is no buy and sell recommendation of any kind.
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FAQ
Paytm assets declined from 10303.10 to 9151.30 in the financial year 21. Similarly, there is also a decrease in the total revenue from 3540.70, this figure has come down to 3186.80.
Investing Rs 4,300 crore to strengthen the Paytm ecosystem, in which the company will focus on retaining existing customers and merchants and on new customers and merchant acquisition.
2000 crore to be invested in new business innovation, acquisition, and strategic partnership and for some general corporate purposes.
There are mainly 2 revenue sources of Paytm:
1. Payment and Financial Services
2. Commerce and Cloud Services
Payment business and financial services offered to retail customers are included in this vertical. The services and products sold to merchants like Paytm Soundbox and POS are also a part of this vertical.
Paytm’s e-commerce business comes under this vertical like online shopping, ticket booking, etc. Software cloud and advertising services offered to merchants are also included in this segment.