IPO Synopsis

The One97 Communications subsidiary, Paytm IPO has opened for subscription from 8 November to 11 November with an aim of raising Rs.18,300 crore. This IPO is set to be 22% bigger than the largest IPO till date- Coal India, which raised Rs.15,000 crore in 2010. 

Rs.2080- Rs.2150 has been set as the price band of the IPO, with a minimum investment amount of Rs.12,900 (6 shares). The fresh issue portion of the IPO is Rs.8300 crore and the rest is an OFS. The shares are to be credited to the respective Demat accounts by 17 November and the company is supposed to be listed on the stock exchanges by 18 November.

On the first day of subscription, the public issue has been subscribed 0.73 times in the retail category. 

Objectives of the IPO

1. Out of the Rs.8300 crore that the company is aiming to raise through a fresh issue, Rs.4300 crore is being used to strengthen and grow the Paytm ecosystem, client and merchant retention and acquiring of newer technology and financial services
2. Rs.2000 crore is to be used for business acquisitions, partnerships and new business initiatives
3. The rest of the money is to be used for general corporate purposes

About Paytm

The company was promoted by Vijay Shekhar Sharma way back in 2000 and offers a complete digital payment ecosystem in India. Apart from offering its own proprietary wallet and bank account, The company also facilitates commerce, bill payments and bank to bank transfer of funds on its platform, including UPI transfers.

As of March 2021, it has a client base of over 33 crores who transacted on the platform with 2.10 crore registered merchants. In its last round of funding in 2019, the company was valued at $16 billion and it is expected that its valuation post-IPO would be in the range of $25 billion to $30 billion making it among the valuable digital properties in India.

Financial Status of Company

Paytm has been making net losses over the last 3 years, although the net loss has been narrowing with a gradual fall in the promotional expenditure. Here is a quick summary.

Paytm Financials

As is evident from the above table, losses have clearly narrowed even as revenues took a hit due to COVID in FY21. The fresh issue proceeds of Rs.8,300 crore will be mainly used for acquiring customers, strengthening the payment system, strategic partnerships, inorganic acquisitions and for higher-end technology investments.

Key Points

Strengths of the company

1. The company has a very desirable customer base of one-fourth of the Indian population i.e. 33 crore people and 21 million registered merchants
2. Paytm has a brand value of a whopping $6.3 billion
3. It is India’s leading digital payment avenue

Weaknesses

1. Many analysts have called this IPO a speculative investment rather than a prudent investment bet as in spite of the whopping 60% cut in marketing and promotional expense, the company has continued to report losses in FY21 too hence the idea of profitability hangs in the balance
2. It is not just a passive investment, the investor needs to keep an eye on the workings and operations of the company and its management

Risk factors

1. The company has negative EPS which means that the company is experiencing only losses and no profits
2. Initial level investors are selling their stakes in the company which they obtained at a price range of 50 paise to Rs.15.40 and this can pose as a great risk to the new investors
3. The ROE is negative
4. The 7 book running lead managers of this IPO have handled 48 public issues and 25% of these issues are trading below the issue price, so there is no guarantee of the opening price being more than the price paid for the shares by the investor.