One97 Communications (Paytm) IPO - Information Note

5paisa Research Team 5paisa Research Team 20th March 2023 - 11:29 am

Paytm is perhaps one of the most popular digital brands in India, which is why Kontor Brandz had valued the Paytm brand alone at $6.3 billion. That is nearly 35% of the value of Paytm as implied in the IPO. Paytm offers payment services, commerce, cloud services and financial services entirely on a digital mode.

Paytm is a virtual digital universe of its own with over 33.3 crore registered consumers, over 11.7 crore active users each year and over 2.18 crore merchants registered on its platform. Paytm is, in fact, a combination of a consumer and merchant ecosystem with virtual dominance in both. The next big thing for Paytm is the offering of intuitive digital products.

Key terms of the IPO issue of One97 Communications (Paytm)

Key IPO Details	Particulars	Key IPO Dates	Particulars
Nature of issue	Book Building	Issue Opens on	08-Nov-2021
Face value of share	Rs.1 per share	Issue Closes on	10-Nov-2021
IPO Price Band	Rs.2,080 - Rs.2,150	Basis of Allotment date	15-Nov-2021
Market Lot	6 shares	Refund Initiation date	16-Nov-2021
Retail Investment limit	15 Lots (90 shares)	Credit to Demat	17-Nov-2021
Retail limit - Value	Rs.193,500	IPO Listing date	18-Nov-2021
Fresh Issue Size	Rs.8,300 crore	Pre issue promoter stake	N.A.
Offer for Sale Size	Rs.10,000 crore	Post issue promoters	N.A.
Total IPO Size	Rs.18,300 crore	Indicative valuation	Rs.139,379 crore
Listing on	BSE, NSE	HNI Quota	15%
QIB Quota	75%	Retail Quota	10%

_{Data Source: IPO Filings}

Here are some of the key merits of the One97 Communications (Paytm) business model

i) It has high brand recall, especially beyond the metro and large cities.

ii) It largely dominates the consumer and the merchant ecosystem.

iii) Paytm is the only payment company in India to own each layer of the stack.

iv) It is largely a professionally managed company with no identified promoter group.

v) Paytm Bank has 6.5 crore accounts, Rs.5,800 crore in deposits and Rs.6,900 crore invested in wealth products.

vi) For FY21, Paytm had gross market value (GMV) of Rs.400,000 crore with over 740 crore transactions across 12 crore transacting users.

vii) Cross selling across commerce, payments and wallets could be the next big thing to penetrate customer wallets deeper

How is the One97 Communications (Paytm) IPO structured?

The Paytm IPO will be a combination of a fresh issue and an offer for sale. Here is a gist of the IPO offer of the company.

a) The fresh issue component will entail the issue of 386.05 lakh shares and at the peak price band of Rs.2,150 per share, the fresh issue amount will be Rs.8,300 crore.

b) The OFS component will comprise of the issue of 465.12 lakh shares and at the peak price band of Rs.2,150, the OFS value would be Rs.10,000 crore resulting in a total IPO issue size of Rs.18,300 crore.

c) Vijay Sekhar Sharma will sell 18.73 lakh shares valued at approximately Rs.402.70 crore. However the four biggest sellers in the OFS will be Antfin Netherlands at Rs.4,704 crore, SAIF at Rs.1,891 crore, SVF Panther at Rs.1,689 crore and Alibaba.com at Rs.785 crore.

One97 Communications (Paytm) will be valued at Rs.139,379 crore or at current exchange rates approximately $18.6 billion. This is far lower than what the company was anticipating ahead of the IPO, wherein it was looking at a pricing range of $20-25 billion.

Financials of One97 Communications (Paytm)

Financial Parameters	Fiscal 2020-21	Fiscal 2019-20	Fiscal 2018-19
Sales Revenues	Rs.2,802.40 cr	Rs.3,280.80 cr	Rs.3,232.00 cr
EBITDA / Loss	Rs.-1,767.30 cr	Rs.-2,634.40 cr	Rs.-4,366.10 cr
Net Profit / Loss	Rs.-1,701.00 cr	Rs.-2,942.40 cr	Rs.-4,230.90 cr

_{Data Source: Company RHP}

Considering the breadth of investments being made by Paytm in its current and future franchises, the losses are likely to continue. However, there has been a sharp narrowing of losses from Rs.2,942 crore to Rs.1,701 crore. A lot would predicate on how the new initiatives like Paytm Money are able to build on the franchise of the core Paytm.

Check - PayTm IPO - 7 Things to Know

Investment Perspective for One97 Communications (Paytm)

When Zomato was subscribed 39 times despite its size of Rs.9,375 crore, it had raised hopes among digital plays. The response to the Nykaa IPO and Policybazaar IPO will be crucial to the success of the Paytm. Here are few points to note.

A) The current IPO price implies a valuation of $18.6 billion and is just about 20% higher than its last placement. Most digital plays have seen their valuations grow nearly 100% in the last 2 years. That makes Paytm an interesting play on digital India.

B) Paytm has strong dominance over the consumer and the merchant ecosystem and that is likely to favour in its future initiatives. The expansion of ROI can have a multiplier effect on the revenues of Paytm in the coming years.

C) More than 75% of its fresh issue proceeds will go towards strengthening the Paytm ecosystem, inorganic growth, technology investments etc. All these are value accretive for the company.

D) Unique online transacting users are expected to grow from 25 crore to 75 crore in India by 2026. Paytm would be the best positioned to capitalize on this trend.

Above all, it is the penetration in non-urban India and the mindshare that could be the biggest assets for Paytm.

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