July 16, 2021
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The parent company of Indian payments company Paytm is seeking to raise up to $2.2 billion in an initial public offering of its shares on the BSE, formerly the Bombay Stock Exchange, and the National Stock Exchange of India, according to filings released Friday.
The offering — nominally from One 97 Communications, but we'll refer to it as Paytm here, as most people do — is the latest indicator of the strength of the Indian tech market. Ecommerce company FlipKart was just valued at $37.6 billion, food delivery outfit Zomato just went public and payments rival MobiKwik also just filed for an IPO. It reportedly seeks to begin trading on those markets by October. In the lead-up to the IPO, sovereign wealth funds for Abu Dhabi and Singapore have engaged in talks with Paytm to become anchor investors, according to a report from Bloomberg based on anonymous sources. BlackRock and Nomura have also reportedly expressed interest in making a bid, Bloomberg disclosed.
For investors looking to bet on the growth of the Indian economy, Paytm offers a broad reach across multiple sectors.
Paytm is best known as a mobile payments provider but it also offers a wide range of financial services from consumer banking and ecommerce to merchant payments. Paytm has India's answer to China's WeChat and Alipay — a super app that spans a range of consumer services. While not as fully developed as those companies, Paytm looks to be rolling out more and more features for consumers.
Paytm is capitalizing on the strength of mobile and internet use in India and the growth of the country's middle class. India added more than 500 million new smartphone users over the past decade and is expected to have 1 billion internet users by 2026.
Launched in 2009, Paytm now has 333 million consumers and 21 million merchants using its services.
Paytm offers mobile banking for consumers and businesses through Paytm Payments Bank, which it owns 49% of, including savings accounts and debit cards. Paytm also lends through partners, providing 1.4 million loans in the 2021 fiscal year. It also offers co-branded credit cards and "buy now, pay later" retail loans.
In its core payments sector, Paytm has bill payment, mobile top-up, money transfer and Paytm Wallet contactless payments. In ecommerce, the Paytm super app sells movie and travel tickets and offers online games. It even sells insurance polices and gold.
On the merchant side, it has tools for in-store and in-person commerce: a payments gateway, bill payment, QR-code payments and point-of-sale software and hardware.
Paytm's revenue dropped 14.6% to $375.7 million in the 12 months that ended in March, its 2021 fiscal year. Its consolidated net loss also dropped to $227.4 million in fiscal 2021 from $381 million in the 2020 fiscal year.
Paytm said that it expects to "continue to incur net losses for the foreseeable future and we may not achieve or maintain profitability in the future."
"Lockdowns imposed as a result of the pandemic impacted our operations, in particular our commerce and cloud business," the company wrote in its filing. Its commerce and cloud revenue dropped 38% from fiscal 2021 to fiscal 2020, as India reeled from a surging pandemic. Travel, movies and event sales were heavily affected. As India eased its lockdowns, the value of the transactions it processed bounced back.
Paytm faces two significant risks: competition against market-dominant tech firms and access to digital ecosystems.
India's digital economy is defined by its giants, and these companies will likely use their dominance to squeeze Paytm's mobile payments market share.
As part of this battle, Paytm is in a fierce competition against at least three other major groups for licenses from the Reserve Bank of India as "new umbrella entities" as part of a new Indian payments network.
The problem of competing against tech giants goes beyond winning over customers — it's also about access. It notes that restrictions on app marketplaces could affect its mobile app usage:
China's Ant Group holds 29.6% of Paytm's pre-IPO shares. SAIF Partners, now known as Elevation Capital and which has been investing in India for 19 years, holds 18.5%. SAIF invested in Paytm's Series A, according to PitchBook. China's Alibaba holds 7.2%. Warren Buffet's Berkshire Hathaway owns 2.8% of shares. SoftBank Vision Fund holds 1.3%.
The most surprising name on this list is probably Berkshire Hathaway, which is not known as a tech investor—it could make a tidy 60% gain on its investment in just three years.
"This is the right time to do an IPO because the competition is rising fast and that preference for Paytm is declining; the IPO could make the difference for them to compete." — Neil Shah, technology analyst, Counterpoint, to the Financial Times in June
"Paytm has come a long way from a simple digital wallet business to an integrated payments ecosystem. We believe the next stage of growth will be led by financial services, particularly delivering seamless credit tech products to consumers and merchants." — Bernstein analysts in a report (via the Economic Times)
"Paytm's various businesses ranging from insurance broking to e-commerce, have not added much to revenue. Beyond its core product of payments, it hasn't really made a wave." — Mint deputy editor Aparna Iyer
Update: This story was updated on July 27, 2021, to include trading debut details; it was updated again on October 7, 2021 with reports of anchor investments.