Diwali IPO for PayTM in the cards

With an estimated valuation of USD 22 – 25 Billion, PayTM may go for an IPO in the Indian Stock Markets by Nov. 2021, sources said. Alongside, existing Investors may also dilute their shares pro-rata, that is in proportion to their shareholding, thereby unlocking huge RoI on their investments.

China’s Alibaba Group, Japan’s Softbank and marquee investor SAIF Partners (now renamed Elevation Partners) are the key investors in PayTM. Along with JP Morgan and Morgan Stanley, the company is planning to bring on board Axis Capital, SBI Capital and ICICI Securities to accelerate its compliance timelines so as to file the Red Herring Prospectus by July 2021.

PayTM has raised USD 2.8 Billion till date and is planning to dilute about 10% of shares on the block.

PayTM started off as a payment App and grew to stardom after the infamous 2017 Demonitisation drive by the Union Government of India when Rs. 2,000 and Rs. 500 denomination currency notes were abruptly stopped from circulation and exchange since 7 Nov. 2017 onwards. Over time, “PayTM Karo” became a national slogan and the company is credited to have changed the way millions of people across the country make and receive payments for day to-day transactions, from buying grocery to filling fuel, apparel, food, e-commerce and much more.

The high decibel advertising a day after DeMo was announced across national newspapers created a furore and over time, other payment platforms such as PhonePe (owned by Flipkart) and Google Pay have risen in volumes and users. Apple Pay, the payment gateway within the Apple ecosystem is expected to be launched soon, so Apple users can control and make payments in one click.

Millions of Retailers have benefitted from digital payments, while at the same time, this has added up the tax burden for a few, who were earlier skipping the receipts in official records. Now, with tighter control on GST filing coupled with Aadhar Number integration with PAN (personal and business), most payments are getting accounted for, which is leading the country in a better direction.

Between FY 2017 & FY 2018, the revenue for PayTM are three times from Rs. 813 Cr. to Rs. 3,234 Cr. while its Expenses more than doubled from Rs. 2,047 Cr. to Rs. 4,718 Cr. during the same period. For FY 19-20, the Revenue for the company was Rs. 3,350 Cr. while its expenses were Rs. 5,861 Cr.

Now, one can imagine why would a company with Rs. 5,000 Crores expenses and Rs. 2,833 Cr losses for FY 2019-20 would be valued 8-10 times it’s turnover. The valuation of startups has always been dicey and is best known to experts who arrive at a sum based on a number of calculations, important among them being “Cost of replacement” theory established in the late 80s by Stock Market Bull Harshad Mehta. For the record, PayTM had 200 million users in 2017-18 which has now grown to 350 for the immediate past financial year.

Going by its revenue figures, each user is said to have spent Rs. 100 for the year. The number of merchants has grown from 7 million three years ago to 10 million most recently.

Given the scenario, its is estimated that PayTM’s valuation (cost of replacement) is justified. However, time will tell how this would span out.