All eyes are on the much-awaited initial public offering (IPO) of the Noida-headquartered Paytm, which is likely to hit the market by year-end. Paytm owner One97 Communications is an 11-year-old financial technology company, which is already valued in the market in the excess of $24 billion.
This kind of market valuation makes Paytm bigger than many mid-sized banks like IndusInd Bank, RBL Bank, and IDFC First Bank. Two-and-a-half years ago, the company was valued at $19 billion, when it raised funds from global investors. Let’s look at key elements related to Paytm that investors should know before applying for its IPO.
Financial services model on top of payments
Vijay Shekhar Sharma’s One97 Communications Ltd with a Paytm brand is building a financial services business model on top of its successful payments business. The customer base and a network of merchants provide a captive base for cross-selling lending products, investments, insurance, and other products.
Not playing balance sheet game
Paytm has a balance sheet size of Rs 9,479 crore, which is bigger than many fintech start-ups. But there is no comparison with the banks as they are into direct lending. The 11-year-old Noida firm is currently playing the non-balance sheet game with payments at the centre. The lending business is through tie-ups with NBFCs and other players. The real high-margin business will kick in if the company starts lending from its balance sheet in a big way. But for this, Paytm needs a full-scale banking or a small finance banking licence, as the cost of funds matters a lot to compete with the banks.
Paytm is still in the red
The company is consistently making losses. The losses were reduced to Rs 1,701 crore in 2020-21 from Rs 2,942 crore in 2019-20. It has been generating consolidated revenues of Rs 3,000 crore plus. But one should not worry too much about the losses, as the company has been investing for the future. Going forward, Paytm has to scale up the businesses to show profitability. The stock market will look for profitability guidance.
Also read: Paytm Money launches service to pre-book IPO allotments, to begin with Zomato
Financial supermarket model
Unlike other fintechs, Paytm is not focused on one particular segment of the financial services business like lending or payments or investments. It is following a digital supermarket model for delivering financial services. The key differentiation going forward would be on the innovative offerings, as there are traditional well-established players like ICICI, HDFC, Kotak, and SBI group, with an extensive product basket in the financial space. These large players, too, are making aggressive moves in the digitisation of financial services. It’s going to be a tough competition for Paytm.
Vijay Shekhar listed as non-promoter
Paytm founder and promoter Vijay Shekhar Sharma, the man behind its rise, will no longer be identified as the promoter. The market regulator, the Securities and Exchange Board of India (Sebi), rules requires the promoter of a listed entity to have at least 20 per cent of post-issue capital.
Paytm is in a high-growth business, and there may likely be a need for higher capital. It will further reduce Sharma’s equity shareholding from 14.8 per cent at present. For institutional investors, a promoter’s skin in the game matters. Paytm is into businesses where one needs constant innovation and new strategies to beat the well-established banking players and new disrupters.
Also read: Paytm president Amit Nayyar, 4 other senior executives resign ahead of IPO
