Paytm’s IPO is the fourth by an Indian tech startup and the third since October 28, when the beauty products retailer hero Launched its IPO. This was followed by a public offering by Policybazaar from November 1 to 3.
Price Band: The price band of Rs 18,300 crore share sale ending November 10 has been fixed at Rs 2,080-2,150 per share. Paytm’s parent company One97 Communications has already raised Rs 8,235 crore from anchor investors ahead of its share sale.
The allotment will be finalized by November 15 and listing is expected on November 18. Eligible investors will receive the shares in their demat accounts by November 17.
According to Axis Capital, the post issue market cap of the company will be around Rs 135,111 – 139,379 crore.
Allocation: The minimum bid lot size has been fixed in the form of 6 equity shares and thereafter in multiples of 6 shares. Therefore, retail investors can invest a minimum of Rs 12,900 for one lot and their maximum investment will be Rs 1,93,500 for 15 lots.
Up to 75 percent of the offer is reserved for qualified institutional buyers, 15 percent for non-institutional investors and the remaining 10 percent for retail investors.
Problem Size: Equity shares worth Rs 8,300 crore and Rs 10,000 crore have been issued afresh by offer for sale (OFS) by existing shareholders. This will be the biggest offering in the country after the IPO of Coal India in 2010, which raised Rs 15,200 crore.
Last week, Paytm had raised Rs 8,235 crore from anchor investors. Global investors such as BlackRock, Vanguard and Fidelity are among the big anchor investors. Paytm has now raised 45% of its total capital which it needs to raise through IPO.
What are anchor investors?
They are large investors who are allotted shares at a fixed price before a public offering. Paytm’s anchor investors include Sovereign Wealth Fund and financial investors such as Singapore’s GIC, Canada’s CPPIB, BlackRock, Alken Capital and Abu Dhabi Investment Authority.
BlackRock, CPPIB and GIC are among the top investors in Paytm’s anchor round. Together, the two have invested more than Rs 2,516 crore. US hedge funds Janus Henderson, Fidelity, Standard Life Aberdeen and UBS also picked up shares in the anchor round, which was oversubscribed nearly 10 times.
Company Financials: Paytm’s operating revenue grew over 61 per cent to Rs 890 crore during the June quarter of FY22 from Rs 551 crore in the year-ago period, while the loss increased to Rs 382 crore from Rs 284 crore in the year-ago period. Rs. Paytm’s financial services contribute 77 per cent to its total revenue.
Offer Details: founded by Vijay Shekhar Sharma Will sell shares worth Rs 402.65 crore through offer for sale (OFS). Among the investors, Antfin (Netherlands) Holding BV will sell shares worth up to Rs 4,704.43 crore, Alibaba.com Singapore E-commerce will sell shares worth Rs 784.82 crore, SVF Panther (Cayman) will sell up to Rs 1,689.03 crore and BH International Holdings. 301.77 crore shares through OFS.
Antfin (Netherlands) is the largest shareholder in the holding company with 27.9 per cent stake, followed by SVF India Holdings (Cayman) with 17.3 per cent stake, SAIF III Mauritius Company (11.4 per cent), founder Vijay Shekhar Sharma (9.1 per cent). ), and Alibaba.com Singapore e-commerce (6.8 percent).
Purpose of IPOPaytm said it will use the proceeds of the IPO to grow and strengthen the company, including acquisition and retention of consumers and merchants, and giving them greater access to technology and financial services. The fresh issue funds will also be used for new business initiatives, acquisitions and strategic partnerships.
The company has the largest payments platform in India with a GMV of Rs 4 lakh crore in FY21. It has a total mobile payment transaction market share of around 40 percent and wallet payment transaction market share of 65-70 percent in India.
Should you invest in IPO?
While many experts have termed Paytm’s $19.5-20 billion valuation as too expensive, others are concerned about the fact that it is yet to turn a profit despite being in business for more than two decades.
According to Motilal Oswal Financial Services, the key opportunity for Paytm is to monetize its large consumer base of 333 million and merchant base of 21 million through cross-selling of financial services like credit, money and insurance.
However, any increase in payment processing charges Paytm pays to financial institutions and card networks may impact profitability as these charges account for 40% of the total operating expenses.
Even ICICI Securities has warned that any failure to attract traders and volume could adversely affect trading. It said reliance on payment services for most of the revenue is another major risk.
“Big tech firms are going for a big hit and Paytm is next in line, gearing up for the biggest IPO of the decade with revenues of Rs 32 billion, but loss of Rs 17 billion and negative cash flow. While the matter It is not the fashion to make profits in tech companies, especially those that are about to hit the market, even on growth parameters, much remains to be desired.In FY2011, due to the pandemic. The year, when the use of digital wallets and mobile payments increased, the company posted a decline in revenue. Despite a 60% cut in marketing and promotional expenses, losses continued and the road to profitability is unclear. The proposal is raising more money, than the new issue. Although it is highly likely to be a successful IPO, from a long-term perspective, it seems more like a speculative than a prudent investment bet,” said senior research at EquityMaster. Says analyst Richa Agarwal.
So why is this speculative?
Any valuation is a projection of future expectations. There is no doubt that mobile payments and digital cash are a megatrend. But it is more than a factor in the valuation. At the high end of the offer price, Paytm is valued at around $20 billion, 50 times sales! This is much higher than some of its global counterparts.
For example, PayPal trades at 14 times the selling price. Current valuations are also ignoring competitive intensity.
While Paytm was a major beneficiary of demonetisation, the firm has lost market share to entrants relatively recently. PhonePe and Google Pay now dominate the UPI space. And a dozen more names have entered this space. As the competition gets brutal day by day, forget making profits, even sustaining the growth rate will be quite challenging, explains Agarwal.
While brokerage Angel has recommended that investors subscribe to the issue as Paytm is well positioned to benefit from the expected 5x growth in mobile payments between FY21 and FY2026, said Jyoti Roy, DVP-Equity Strategist, Angel Forest agrees that appraisals are expensive.
“At the upper end of the price band, Paytm is valued at 49.7 times FY2011 revenue. Although the valuation may sound expensive, Paytm is synonymous with digital payments via mobile and is the market leader in the mobile payments space. ”
Marwari Financial Services wants investors to avoid IPOs as valuations are too high for a loss-making company. According to the brokerage, if Paytm fails to retain its consumers, attract new consumers, expand its transaction volume from consumers, it will hurt its business, revenue, profitability and growth. In addition, failure to improve technology infrastructure can also hurt business.
The company said, “Considering the last twelve months (TTM) sales of Rs 3,142 crore on a post issue basis, the company is going to be listed at a market cap/sales of 44.36 crore with a market cap of Rs 1,39,379 crore. has been.”
A report by KR Choksi said that the company will have to remain on a high growth trajectory for revenue for three years to maintain the current valuation.
However, valuation guru Ashwath Damodaran agrees that the fintech company should be valued at Rs 1,45,671 crore or $19.60 billion. According to him, almost all of Paytm’s value comes from future expectations, and there is significant uncertainty in every single dimension.
“Even if you are on the side of the company and it is undervalued, it would be hubby to center your portfolio around this stock. In other words, this is the type of stock in which you would invest 5 percent or maybe 10 percent of your portfolio, not 25 percent or 40 percent,” he wrote in his blog.
.