One97 Communications is all set for the initial public offering of its fintech subsidiary Paytm, which aims to raise as much as 183 billion rupees (US$2.44 billion).
Paytm’s IPO will include a fresh issue of shares worth US$1 billion and a share sale from existing stockholders of up to US$1.3 billion. The offer will be available between November 8 and November 10.
The fintech giant has set the price of US$28 to US$28.7 per equity share.
Ahead of the long-awaited listing – considered India’s biggest till date – founder and CEO Vijay Shekhar Sharma and other Paytm executives gave an overview of the company and its recent performance and plans.
Tech in Asia looks at some key points from Paytm’s presentation for the IPO.
Strong business momentum
Paytm noted that its business – inclusive of the payments and financial business and the commerce and cloud services – grew by 62% in the first quarter of the financial year ending (FYE) March 2022.
Even as payments and financial services drove revenue during the quarter, its commerce and cloud services business too saw an uptick of 66%. Contribution margin increased by nearly 3x in Q1 FYE 2022 from the same quarter last year.
Even as its revenue soared, Paytm’s expenses have also grown steadily. Total expenses for the company in the first quarter stood at US$175 million, up by 40.6% from the same quarter in the previous fiscal year.
Paytm’s Q1 expenses
Payment processing charges remained the top contributor to expenses, which rose by 32%.
Putting valuation controversy to rest
During the presentation, Paytm put the debate about its post-IPO valuation to rest. It is seeking a valuation of around US$20 billion, even though some investors have suggested lower pricing.
The company said that it could have gone for a higher valuation, but it does not “believe in getting every last dollar of valuation.”
Paytm also clarified why it scrapped its pre-IPO round, saying that it was due to “timelines” as it was a separate process. The company added the move was aimed at being “fair and equitable” by making all the shares available in the IPO, as opposed to taking out a chunk out and offering that to just a few shareholders.
On NBFC license
Paytm said it won’t seek a license for the non-banking financial company from the central bank, explaining that it is already running a scalable business in partnership with banks and financial service providers.
The company added that its business model covers disbursement and distribution, and is anchored on being a technology partner for lenders. It does not intend to be a credit player.
Interestingly, Paytm’s lending business is on the rise. Its gross merchandise value (GMV) in the space has increased by 2x from Q2 of FYE 2021 to Q2 FYE 2022.
Investments outside India
In October 2018, Paytm launched PayPay Corporation, a joint venture with Yahoo Japan and Tokyo-based conglomerate SoftBank.
However, Paytm said it has no plans to make additional investments in Japan or any other market as of now. But it didn’t completely rule out the possibility of doing so in the longer term.
“Paytm continues to explore international opportunities, especially in the developed markets, where it can either launch its merchant services or collaborate with partners to launch consumer-facing platforms,” the company said.
Prospects of commerce and cloud services
As Tech in Asia explained in a previous analysis, Paytm’s commerce and cloud services have been on a decline in the last few financial years.
Commerce and cloud services include ticketing (for entertainment and travel), deals, loyalty services, mini apps, advertising, and enterprise solutions.
See also: 8 shades of Nykaa’s pre-IPO presentation
However, Q1 of FYE 2022 offered a silver lining for the unit, which saw a 66% surge in revenue.
Paytm CEO Sharma said that the company doesn’t give cashbacks, but it has no qualms about merchants giving offers to customers.
He added that commerce and cloud services currently contribute a smaller percentage to revenue, but it’s growing. He also acknowledged that the Covid-19 pandemic and related issues have affected the business.
Fundraising, acquisitions, and hiring
Paytm said it is not looking to raise more funds unless there is an “extraordinary event.”
On possibility of acquiring firms, the company said that it’s prioritizing building over buying. As of now, it doesn’t see anything “bright enough” to purchase.
“When we look at buying, we will look what it adds to us either as a new market or a new ability and capability. We don’t want to do the consolidation in the same business that we are,” Sharma added.
Paytm is also looking to capitalize on an emerging trend: remote working. The company, which has more than 10,000 employees in India, will start recruiting people in the country’s Tier 2 and Tier 3 cities.
*Currency converted from Indian rupee to US dollar: US$1 = 74.88 rupees.