In the month of November, the first half is loaded with five IPOs namely Paytm, PaisaBazaar, SJS Enterprises, Sapphire Foods India and Sigachi Industries. They all are to come up with their first Initial Public Offerings. They all are expected to collectively raise 27,000 crores or more.
Our focus shall be on the Paytm IPO in this article.
The subscription by Paytm’s parent firm, One97 communications is going to be open from November 8. Those who are interested will be able to bid till November 10. The IPO size is going to create a history being the biggest public offering and shall be of Rs.18,300 crore. Paytm’s IPO is much awaited IPOs of the year. Analysts say that it is going to be a large reception making the probable valuation of the company at $20 million.
Link Intime India is the registrar of the issue and shall carry out the allotment process. The book running lead managers include, Axis Capital, ICICI Securities, JP Morgan India Private Limited, Morgan Stanley India Company, Goldman Sachs (India) Securities and Citigroup Global Markets India Private Limited.
Paytm is the second notable loss-making company after food delivery firm Zomato to come up with an IPO. However, it is quite popular and this leading digital ecosystem for consumers and merchants-has been used by all of us at some point to make or receive payments. Paytm was launched in 2009 to make cashless transactions possible. It has around 34 crore registered users
You can take part in the IPO through online platform using your Dmat account.
Before doing so you may have a look at its latest financial results, valuation of the company, share holding pattern and the major ratios to depicting its performance. The services are divided into three parts
1.Payment services to consumers
2.Payment services to merchants and,
3.Others including financial services.
Out of these three types of businesses, the payment services to merchants are showing a good performance as compared to payment services to consumers and other financial services. Then there are travelling ticket and Mall businesses which show a declining trend. Their cloud business has been a bit higher, but it consists of the same customer base.
When it comes to the shareholding founder Vijay Shekhar Sharma holds 14.61% and Alibaba & Ant Group holds 38%. The other major shareholders are SoftBank Vision Fund and Elevation Capital (SAIF partners) hold 18.73% and 17.65% respectively. IPOs main aim is not focused on profitability and that’s a major point to be kept in mind. A part of the IPO will be used to pay the existing investors, who might eventually take an exit following the terms and conditions. However, Softbank Vision Fund has no plans to exit the company soon.
It we look at its earnings, the picture is not very strong. Though the losses are declining but they should be controlled in the coming years. The company is thriving to reduce losses, its merchant business has not got affected much in the first half of FY21 as far as revenue is concerned. It has reported consolidated revenue of Rs. 3186.8 crore in FY 2021 cutting down its loss to Rs.1701 crore. Since the company is making losses, it is better to use revenue multiple approach instead of price earnings share. Market cap to revenue was 36.76 for the year 2020 and 37.18 for 2021 which are considered quite high.
The market of Digital payment system has promising future in coming days, as it is going to grow manifold in next five years span. UPI system is also powerful making Phone pe and Google pe two largest mobile payments by value, though keeping Paytm on the third position. Due to digital payments replacing the traditional payment methods, the payments by value are going to be higher.
The merits to be taken note of: Paytm is a trusted brand with a 6.3 billion-large consumer base, it has network first mover advantage strong proprietary, tech platform, diverse product portfolios, user friendly interface.
But negatives are: It has a history of losses, Paytm is not successful in any of its businesses this could be due to lack of focus as it is spread into many types of businesses. Naturally it is not number one anywhere. Despite of the IPO coming this year, a few employees holding major positions have left the company. Unlisted UPI service providers have become its major peers. As the company is doing many businesses, it has to look after many compliances like SEBI regulations, IRDA regulations etc which may be quite a lot to handle at a time.
The biggest advantage that Paytm has is its big consumer base, merchant base is already strong it might grow bigger in the coming days. It can expand into international markets. Similarly, expansion of financial services can also be considered by the company. If there is not yet another wave of Covid-19, the threats against the company will become less. We wish the IPO turns out to be fruitful for the company.
Bhoi Smrutirekha Dharanidhar