In July, 2021, One97 Communications Limited, owner of brand Paytm, filed draft prospectus with Securities and Exchange Board of India (SEBI) for its initial public offering for up to ₹16,600 crores. The IPO will include the fresh issue worth 8,300 crores and offer for sale worth ₹8,300 crores. At an IPO size of ₹16,600 crores, Paytm stocks would be the biggest IPO in India’s stock market history since the IPO of Coal India’s ₹15,200 crores in 2010. The IPO news has pushed Paytm share price in the private market from ₹ 1,000 to current price ₹ 2,500.
On Road to Profit?
Analysis of last year’s financial statements gave hint that the company may be getting ready for listing. At the cost of sales, the company focussed on reducing its losses (down by 42%) by scaling back the payment processing charges and cash-back and marketing spend. The company plans to become cash-positive by the end of FY 2022. Currently, Paytm platform is the largest digital-payments platform in India hosting 21.1 million merchants, 333 million customers, generating Gross Merchant Value (GMV) of ₹ 4,033 billion in FY 2021.
From Payments to Financial Services
The company now expects its next phase of growth to come from cross-selling a wide range of financial services to its merchant partners and platform users- insurance, mutual funds, credit card, equity broking, digital gold, short-term financing, personal loans, e-commerce. Paytm acts as an online distributor of the financial products and services and earns commission income from its channel partners. In line with this business strategy, Paytm has launched Paytm Insurance (to sell life and general insurance), Payments Bank (to accept deposits), Paytm Money (Mutual fund distribution), Paytm Postpaid (similar to credit card) to effectively monetise its huge user base of consumers and merchants by cross-selling and upselling various financial products and services.
Scalable Business Model
What also attracts the private investors to Paytm is that it is a relatively debt-free company and being in the technology sector allows it to scale its operations efficiently. Also, the presence of marquee investors- Ant Group, Alibaba, Berkshire Hathaway as its shareholders, makes the Paytm story more credible for the investors. Individual Investors believe in the due-diligence done by these institutional investors. Paytm was valued at $16 billion during its last funding round in November, 2019. Private investors of Paytm shares may reap listing gains if the company got valued above $20 billion.
Also, keep this in mind
Investors face certain risks while investing in unlisted Paytm shares. After listing on the stock exchange, there is a lock-in period of 6 months on pre-IPO shareholding for non-promoter investors. Another risk private investors face is that Paytm has not currently finalised the issue price of its shares. If the issue price is fixed below the current trading Paytm Share Price, then investors would have to wait longer to realise the expected gains.