One 97 Communications India Ltd., the parent company of digital payments major Paytm, is all set for its public debut most probably by the end of November. It is expecting to raise $1billion-$1.5 billion as a part of a primary share sale in its initial public offering (IPO), the news reports mentioned.
While the outline of the IPO is yet to come in the public forum, the company is interested in a share sale worth at least $3 billion during its IPO.
Paytm is planning to adopt the qualified institutional buyers (QIB) route for listing while its primary funding will be from the fresh issue of shares to QIBs, as per norms stated by the Securities and Exchange Board of India (Sebi), told the third individual aware about the discussion to The Mint.
“The QIBs will participate in the fresh issuance of shares by the company and will also look to buy shares of existing investors including those by Elevation Capital, ANT Financial and Softbank. Retail investors will also be offered shares of these existing investors,” published a statement on The Mint about the matter on the condition of anonymity.
According to the media reports, Paytm is having a list of bankers like Axis Capital, ICICI Securities, SBI Capital Markets, JP Morgan, CitiGroup and Morgan Stanley, for conducting its mega listing. So far, One 97 Communications India has gathered $2.8 billion in its primary fundraising.
Paytm is expected to file its draft red herring prospectus (DRHP) by this July and may have QIBs as an anchor investor in their pre-IPO fundraise, quoted the media reports.
Paytm Existing Shareholders
The division of 100% shares of Paytm is amongst Alibaba Ant Group, Softbank Vision Fund, Saif Partners and the Indian Business Tycoon Vijay Shekhar Sharma. Where Alibaba’s Ant Group holds the maximum portion of 29.71 per cent, Softbank Vision Fund has 19.63 per cent of shares under their belt. Saif Partners owns 18.56 per cent and Vijay Shekhar Sharma has 14.67 per cent of the shares.
AGH Holding, T Rowe Price and Discovery Capital, Berkshire Hathaway together hold less than 10% of the stake in Paytm.
If Paytm can get the desired results, Softbank, at present owns around 20% of the shares and it will get the smooth exit of its 3-4% shares which it plans to liquidate by availing Offer For Sale option that can be used simultaneously with IPO. Paytm is IPO-ready, worth around $3 billion, and also offering SoftBank its largest exit in India after Flipkart. Though, even after the selling of 3-4% shares, Softbank will still have the second-largest shares in the company. This can set an example for their other startups to seek the market en route even when in losses and mark their market debut.
“Thus if Paytm IPO turns out to be a success story it shall open doors for many new start-ups who wait for their balance sheet to show more profits before going public. But it’s not just about having a positive balance sheet but also being able to achieve sustainable performance, in the long run, fetching high return on equity over high risk taken, said Manish Mittal. CEO Of Delisted Stocks.”
Financial Position Of Paytm
IPO bound Paytm managed to lessen its losses by 42 per cent to Rs 1,701 crore in comparison to losses of Rs 2,942 crore in 2019-2020, according to the company’s annual report.
Its Revenue saw a decline of 10% to Rs 3,186 crore in FY21, with revenue from operations coming down to Rs 2,802 crore, a 15% drop. Where the revenues saw a decrease, expenses also dropped 22% to Rs 4,782.95 crore.
The annual report shows that the company had cut its losses by 30 per cent in FY20. While in expenses, a huge reduction in marketing, promotion spending is seen. It has cut down its spending on marketing by 63 per cent to Rs 532 crore for FY21 when compared to Rs 1,397 crore a year ago.
The annual report said that Paytm Payments Bank received revenue of Rs 1,987.45 crore in FY 21 whereas, in terms of total comprehensive income, it earned Rs 18.79 crore. In 2020, Paytm’s payments bank had reported revenue of Rs 2,110 crore and a total income of Rs 2.62 crore.
Paytm General Insurance and Paytm Life Insurance have negligible revenue so far and Paytm First Games Pvt., a joint venture, earned a revenue of Rs 149.33 crore and a loss of Rs 201.93 crore, said the report.
The net worth of Paytm First Games has dissolved its net current liabilities, the annual report said. Another disclosure of the accounts shows that Paytm Entertainment Ltd. had lent Rs 80.92 crore to Paytm First Games “on account of a commercial exigency…”. The repayment of this loan is still due in June 2021.
The company is expected to hold an annual general meeting on June 30 as per the Bloomberg report.
Should Investors Go For Paytm’s IPO?
Paytm is ready to test the market risk appetite. Should a layman think of putting his hard-earned money?
There are many expectations from Paytm IPO to recreate the promising ROI history by IT Company Infosys in the 1990s but it won’t be wrong to say that the history may not repeat itself this time. When Infosys came up with an IPO, it was in its budding stage. But, Paytm already has private players on its board funding and enjoying the returns. But, one must not deny the fact that the increasing business of digitization may impact the business of Paytm and is seemingly to give promising results to the market despite losses. But, still, it becomes a big question, whether a layman must invest or not.
“Paytm revenue has improved marginally to Rs. 3115 Crs in FY20 v/s Rs. 3049 Crs in FY19.It has been successful in cutting down its losses to Rs. 2833 Crs in FY20 v/s Rs. 3959 Crs. In FY19. It is always profitable to enter a new venture at an attractive price as it fetches you the best return. Paytm share price has Spiked up from Rs.11,000 -12,000 to Rs. 21000-24000 in just a week with IPO news. It was attractive around the price band of Rs. 7000-8000 two years back. As it would have benefited the shareholders to grow along with the company, said Manish Mittal, CEO Of Delisted Stocks.
“Paytm appears to have a good future with a focus on getting a small banking license, growth of non-Payment segment and make in India drive. The price depends on demand and supply, currently, it’s priced higher in unlisted space due to higher demand and lower or to say almost no supply. Thus, it’s difficult to say unless the IPO price band is announced, and what shall be the market condition once the company comes out with an IPO as to whether one should invest in Paytm IPO or not,” further added.
It may be treacherous for any investor to put money beyond their risk capacity and driven by sentiments. If an investor is influenced by the headlines, driven by profit-making instead of having a vision, then the downside IPO response may also impact their investment.
“Digitalization has developed a lot in India after demonetisation and also during COVID 19 Pandemic situation. It is the face of the world going further. Thus definitely, Paytm has a huge scope of business going forward. Seeing the demand rising every day for its share it seems that Paytm IPO might get a very good response despite losses and huge expenses. Still, one should not forget that there are two types of investors in the market, one that has a long vision who shall focus on fundamentals and others who are day traders trying to seek out profit from market noise,” said Mittal.
Whether Paytm is going to be promising or not, it all lies in the womb of time. But, for an investor to read the script carefully and take calculative risk shoul be the priority.