One97 Communications (Paytm) is India's
leading digital ecosystem for consumers and merchants building the largest payments
platform in India based on the number of consumers, number of merchants, number
of transactions and revenue end March 2021.
The company was on incorporated on 22
December 2000. It offers payment services, commerce and cloud services and
financial services to 33.7 crore registered consumers and over 2.18 crore registered
merchants end June 2021. The two-sided (consumer and merchant) ecosystem
enables commerce and provides access to financial services through financial
institution partners, by leveraging technology to improve the lives of consumers
and help merchants to grow their businesses.
The company launched Paytm in 2009, as
a mobile-first digital payments platform to enable cashless payments for
customers giving them the power to make payments from their mobile phones. It started
with bill payments and mobile top-ups as the first use cases, and Paytm Wallet
as the first Paytm Payment Instrument.
The company has been able to leverage its
core payments platform to build an ecosystem with innovative offerings in
commerce and cloud, and financial services. Paytm is available across the
country to millions of consumers, shopkeepers, merchants, and small businesses.
The 'Paytm' brand is India's most
valuable payments brand with a brand value of US$ 6.3 billion, and Paytm
remains the easiest way to transact across multiple methods.
The Paytm app is a payments-led
super-app offering consumers with innovative and intuitive digital products and
services. It offers consumers a wide selection of payment options on the Paytm
app, which include (i) Paytm Payment Instruments, which allow them to use
digital wallets, sub-wallets, bank accounts, buy-now-pay-later and wealth
management accounts and (ii) major third-party instruments, such as debit and
credit cards and net banking.
The consumers are enabled to transact
at in-store merchants, pay their bills, make mobile top-ups, transfer money
digitally, create and manage their Paytm Payment Instruments, check linked
account balances, service city challans and municipal payments, buy travel and
entertainment tickets, play games online, access digital banking services,
borrow money, buy insurance, make investments and more.
The company strives to help merchants to
grow their business by giving them access to technology, payment solutions and
financial services. The payments platform gives merchants the ability to accept
payments, online and on mobile platforms, and in-store, from a wide selection
of Paytm Payment Instruments and all major third-party instruments. The company
helps merchants acquire and retain customers on and off the Paytm app, through its
suite of products such as commerce, advertising, miniapp listings, channel, and
loyalty solutions.
The company has average 10,266 on-roll
employees worldwide. It also engages contractors to provide temporary
workforce.
The company offer products and
services across payment services, commerce and cloud services and financial
services. The products and services are carefully developed to address large
markets, and in areas where the consumers and merchants are underserved.
Payment Services
The company has a full suite of
payment services for both consumers and merchants which enables them to make and
receive payments in a convenient, seamless, and secure manner both online and
in-store.
The company is the largest payments
platform in India with a GMV (Total value of commerce products sold on Paytm
platforms) of Rs 4.03lakh crore in FY2021. The company has an overall mobile
payments transaction volume market share of approximately 40%, and wallet
payments transaction market share of 65%-70% in India as of FY2021.
The company offers extensive payment
offerings to consumers to make online bill payments, mobile top-ups and money
transfers using the Paytm app, make online payments on third party apps and
in-store payments through QR codes and devices. Consumers can use a wide
selection of instruments, both third party and Paytm Payment Instruments.
It also offers merchants, Business
Payments, a single platform solution to help manage their cash flows and their
payables including (i) vendor payments, such as rent payments, invoices, and
utility bill payments, (ii) customer cash backs, refunds, and channel partner incentives,
and (iii) employee salaries, reimbursements, and tax benefits.
Commerce and Cloud
Services
The commerce and cloud services
offerings provide a lifestyle destination for consumers to avail lifestyle
commerce services such as ticketing, travel, entertainment, gaming, food
delivery, ride hailing and more. Easy access to such services within the Paytm
App environment, through native offerings or through mini-apps partners, plays
a critical role in user engagement and retention, and enhances brand. The company
also provides software and cloud services that allow large, medium and small
merchants to improve their business operations and access important financial
tools such as banking, wealth and credit facilities. In FY2020, the company processed
a total Commerce GMV of Rs 14220 crore and in aggregate generated over Rs 1100
crore of revenues.
Financial Services
Financial Services is set of
innovative financial inclusion offerings including mobile banking, lending, insurance,
and wealth management for consumers and merchants. The reach, size and scale of
payment services places the company at the center of payments flows between
consumers and merchants. The company distributes and/or develops financial
products that can be the source of payments (such as deposits or lending) and destination
of payments (such as wealth management). Since most of its financial services
businesses were launched recently between 2019 and 2021, financial services
contributed a relatively small percentage of revenue.
Mobile Banking Services:
The Company
provides mobile banking services through Paytm Payments Bank. It offers a
comprehensive suite of digital banking products for individuals, small and
medium enterprises, and large corporates including current account, savings
account, salary accounts, fixed deposits (through Paytm Payments Bank's), and
debit cards.
Some of the Paytm Payment Instruments
are offered with Paytm Payments Bank. Paytm Payments Banks had 65.4 million
savings accounts end June 2021. Paytm Payments Bank was the largest UPI
beneficiary bank with a market share of 17.1% in transaction volume in Q4FY2021.
Lending: The Company operates
a technology platform with capabilities across the entire loan cycle including
origination, developing credit risk models, loan management and collection to
provide a seamless credit access to consumers and merchants through financial
institution partners. The company works with financial institution partners in
improving their distribution, underwriting and collections, and aim to drive the
increase of credit in India. By leveraging Paytm platform's digital reach,
democratizing credit is a significant opportunity for Paytm, to service the
underserved and unserved.
Insurance and
Attachment Products:
In collaboration with insurance partners, the company offer, (i) attachment
products such as movie and travel ticket cancellation protections based on user
engagement on platform and as a part of the payments flow, and (ii) subsidiary,
Paytm Insurance Broking Private Limited, a registered insurance broker with
IRDAI offers an insurance marketplace with products across auto, life and
health insurance, where the company also provide policy management and claim
services for customers.
Wealth Management: The Company provides
wealth management services to consumers through the Paytm app and the Paytm
Money App. The company aim is to bring access to wealth management products to many
consumers and merchants. Paytm Payments Bank launched fixed deposits on the
Paytm app. The company launched Paytm Gold in collaboration with a partner.
Paytm Money offers mutual funds, equity and futures and options trading through
a registered investment advisor license and equity broking license from SEBI.
The company believe that its brand,
distribution, insights, technology skills, and the scope of ecosystem give an
advantage to grow business through, (i) cost-effective acquisition of consumers
and merchants; (ii) reinforce platform by building higher engagement and
stickiness with consumers and merchants; and (iii) build high monetization products
at low cost of acquisition. The company refers to these attributes of business
model as 'flywheels'. Ecosystem has multiple, self-reinforcing flywheels, which
drive consumer and merchant engagement and growth on ecosystem.
The Offer and the Objects
The initial public offer (IPO) consists of a
fresh issue to raise Rs 8300 crore issuing 3.99 crore shares at lower price
band of Rs 2080 per share and 3.86 crore shares at the upper band of Rs 2150
per share.
Further, the offer of sale (OFS) comprises
raising of Rs 10000 crore by issuing 4.81 crore shares at lower price band and
Rs 4.65 crore shares at upper price band.
The issue is to be made through the
book-building process and will open on 8 November 2021 and will close on 10
November 2021.
Out of the net proceeds, the company proposes
to utilize Rs 4300 crore towards growing and strengthening Paytm ecosystem,
including through acquisition and retention of consumers and merchants and
providing them with greater access to technology and financial services, Rs
2000 crore for investing in new business initiatives, acquisitions and
strategic partnerships and balance for general corporate purposes.
In addition, the company expects to receive
the benefits of listing of the Equity Shares on the Stock Exchanges, including
among other things, enhancement of Company's brand name among existing and
potential consumers and merchants, retaining existing and attracting potential
employees, and creation of a public market for the Equity Shares in India.
Strengths
The company has a wide addressable
market in India across payment services, commerce and cloud services and financial
services and gives multiple growth vectors to the company. The market segments
that the company serves have a massive scale and growth, are significantly
underpenetrated, and have potential of technology to grow the industry.
Paytm is a trusted brand and is
available across the country to millions of Indian consumers, shopkeepers,
merchants, and small businesses. Paytm brand is also India's most valuable
payments brand, with a brand value of US$ 6.3 billion and Paytm remains the
easiest way to transact across multiple methods.
The payments platform, with a wide
selection of daily life use cases and payment instruments, provides the company
with large scale and reach.
The company has robust base of 33.7 crore
registered consumers and over 2.18 crore registered merchants end June 2021. The
scale and reach of the company help to distribute new products and services
across all of businesses faster and in a cost-efficient manner.
The company has developed unparalleled
insights into the way Indian consumers spend and save, and the way merchants operate
their businesses. Each transaction on ecosystem provides insights that help to improve
personalization for consumers and merchants and create products and services
addressing their needs.
The company is also able to leverage
these insights to develop insights and credit risk models for itself and for
financial institution partners and prevent fraud on ecosystem.
The company has an average engineering
and technology team of 2,471 members end June 2021, allowing the company to launch
products and services quickly, build various features, offer integrated and synergistic
products, ensure system stability, handle large scale, and provide highest
success rates.
The company is the only payments
company in India that, together with affiliates, owns each layer of the payment
stack allowing to integrate payments offering seamlessly with other offerings.
The strong network effect leads to low
acquisition costs, higher monetization and lifetime value of consumers and
merchants, and better economics across offerings.
India is a country of hundreds of
millions of young and aspiring consumers and millions of small businesses in
India that would benefit from having increased access to affordable software,
technology, and financial services.
India continues to be the fastest
growing major economy globally and is expected to grow at a CAGR of 9% over
next five years to become a US$4.2 trillion economy by 2025.
With increasing smartphone penetration
and internet usage, and the proliferation of digital products and services for
consumers, India's digital ecosystem is at an inflection point. Overall digital
commerce (including e-commerce, e-recharges, and bill payments) in India is
expected to grow over 3.3 times in the next five years to more than US$300
billion in FY 2026 from approximately US$90 billion in FY2021
India's payment landscape has
transformed over the last decade driven by the emergence of mobile payments,
the government's vision to transform India into a cashless society, the
creation of innovative and robust payment infrastructure, high consumer and
merchant acceptance and regulatory support.
The Indian financial services market
continues to be significantly underpenetrated in terms of household debt,
credit card per capita, stock market investments, insurance premium, retail
lending, MSME lending etc.
The regulatory initiatives are driving
digitization of payments and financial services
Weaknesses
The company has incurred net losses
and expects to continue to incur net losses for the foreseeable future and may
not achieve profitability in the future.
The market for platforms, products and
services offered by the company is evolving, and it is difficult to predict
future limits of market opportunity.
The operating expenses are expected to
continue to increase as the company hire additional personnel, broaden
marketing efforts and promotional activities, expand operations and
infrastructure, both domestically and internationally, continue to enhance
platforms and brand, and develop and expand its capabilities, expand products
and services, and expand and improve interface, which may result in an increase
in net losses.
Some of subsidiaries and associates
have incurred losses for the past few fiscal years.
The company is required to pay payment
processing charges to financial institutions and card networks for processing
transactions on its platform. The company may not be profitable if payment
processing charges payable to financial institutions and card networks increase
significantly and the company is not able to pass on these higher processing
charges to merchants or consumers.
Any increase or decrease in payment
gateway charges could make pricing less competitive, lead to change pricing
model, adversely affect margins, and prevent the company from reaching
profitability.
The company needs to be successful in
establishing or maintaining mutually beneficial relationships with payment card
networks, banks, and acquiring processors.
The company offers some of its services
in partnership with Group Company, Paytm Payments Bank. The company owns 49%
equity interest in Paytm Payments Bank and Vijay Shekhar Sharma holds the
remaining 51%. While Vijay Shekhar Sharma is a promoter of Paytm Payments Bank,
the Company is not categorised as one of its promoters.
The company derives revenue primarily
from the fees earned from merchants for the payments, commerce and cloud, and
financial services provided through its platforms. Thus, the growth
substantially depends on ability to maintain and grow relationships with
existing merchants and increase the volume of transactions processed on
platforms.
GMV has increased from Rs 2.29 lakh
crore in FY2019 to Rs 4.03 lakh crore in FY2021 and stood at Rs 1.47 lakh crore
in Q1FY2022. Top five merchants contributed 32 of GMV and 43% of revenues in
FY2021 and 23% of GMV and 35% of revenues in Q1FY2022. Top 10 merchants
contributed 28% of GMV and 41%of revenue in Q1FY2022.
The business is subject to regulation
by various statutory and regulatory authorities in India, including the MCA,
the RBI, Income tax authorities, SEBI and the IRDAI, and other authorities.
The laws and regulations governing
businesses of the company are evolving and may be amended, supplemented, or
changed at any time.
The company is subject to chargeback
and refund liability risk when merchants refuse to or are unable to reimburse
chargebacks and refunds resolved in favor of their customers. Any increase in
chargebacks and refunds not paid by merchants may adversely affect business. The
company incurred a loss of Rs 2.5 crore in FY2021 and Rs 2.9 crore in Q1FY2022 on
account of inability to collect refunds from the relevant merchants.
The company participates in markets
that are competitive with continuously evolving technology and consumer needs. There
are low barriers to entry in the industry and the cost of switching between
offerings is low.
The business depends on a strong and
trusted brand.
The success and growth of business
depends upon ability to innovate and develop new products and services.
The company is expanding and may in
the future continue to expand into new industry verticals and geographic
regions and would get exposed to specific regulatory, credit, and other risks
associated with a new industry vertical or geographic region.
Acquisitions, strategic investments,
entries into new businesses, and divestitures could disrupt business, divert
managements attention, result in additional dilution to shareholders etc.
As a technology-based platform,
business generates and processes a large quantity of personal, transaction,
billing, behavioral and demographic data. The company faces risks inherent in
handling and protecting large volumes of data.
The company relies on
telecommunications and information technology systems, networks, and
infrastructure to operate business and any interruption or breakdown in such
systems, networks or infrastructure or technical systems could impair ability
to effectively operate platforms or provide products and services.
Valuation
One97 Communications (Paytm) has posted 2%
growth in the revenues to Rs 3280.80 crore in FY2020, while the revenues
declined 15% to Rs 2802.40 crore in FY2021 amid the impact of pandemic.
However, the company has recorded improved revenue growth of 62% to Rs 890.80
crore in Q1FY2022. The bottomline remains in red due to high operating
expenses.
At the higher price band of Rs 2150, the
company is demanding mcap of Rs 139854 crore and offer is made at 44.5 times
post-IPO EV/TTM sales for period ended June 2021. There is no comparable listed
player in India.
The post issue book value of the company
stands at Rs 224.7 end June 2021. The scrip is offered at price to book value
multiple of 9.6 times.
Fintech payments bank company that hit the
market with IPO recently- Fino Payments Bank is offered at price to book value
multiple of 9.9 times. In terms of EV to sales for TTM ended June 2021, Fino
Payments Bank is offered at 5.9 times EV to sales.
Another fintech player just concluding its
IPO, PB Fintech - owners of Policybazar and Paisabazar platforms, is offered at
price to book value multiple of 7.8 times. In terms of EV to sales for TTM
ended June 2021, PB Fintech is offered at 46.4 times.
The significant under penetration of the
products category in which the company operates provides healthy growth
potential. However, the company operates in dynamic and competitive fintech
industries making it difficult to predict prospects. The business is subject to
intense competition from existing or new competitors.
One97
Communications (Paytm): Issue highlights
|
For
Fresh Issue Offer size (in no. of shares crore)
|
|
-
On lower price band
|
3.99
|
-
On upper price band
|
3.86
|
Offer
size (in Rs crore)
|
8300
|
For
Offer for Sale Offer size (in no. of shares crore)
|
|
-
On lower price band
|
4.81
|
-
On upper price band
|
4.65
|
Offer
size (in Rs crore)
|
10000
|
Price
band (Rs)*
|
2080-2150
|
Minimum
Bid Lot (in no. of shares )
|
6
|
Post
issue capital (Rs crore)
|
|
-
On lower price band
|
64.96
|
-
On upper price band
|
64.83
|
Post-issue
promoter & Group shareholding (%)
|
0.0
|
Issue
open date
|
08-11-2021
|
Issue
closed date
|
10-11-2021
|
Listing
|
BSE,
NSE
|
Rating
|
43/100
|
One97
Communications (Paytm): Financials
|
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2006 (3)
|
2106 (3)
|
Sales
|
3232.00
|
3280.80
|
2802.40
|
551.20
|
890.80
|
OPM
%
|
-135.1
|
-80.3
|
-63.1
|
-60.2
|
-41.6
|
OP
|
-4366.10
|
-2634.40
|
-1767.30
|
-331.60
|
-370.90
|
Other
Income
|
347.70
|
259.90
|
384.40
|
98.20
|
57.20
|
PBDIT
|
-4018.40
|
-2374.50
|
-1382.90
|
-233.40
|
-313.70
|
Interest
|
34.20
|
48.50
|
34.80
|
10.20
|
9.70
|
PBDT
|
-4052.60
|
-2423.00
|
-1417.70
|
-243.60
|
-323.40
|
Depreciation
|
111.60
|
174.50
|
178.50
|
40.30
|
40.90
|
PBT
|
-4164.20
|
-2597.50
|
-1596.20
|
-283.90
|
-364.30
|
Profit/Loss
of Associate Company
|
14.60
|
-56.00
|
-74.00
|
3.40
|
-12.10
|
PBT
before EO
|
-4149.60
|
-2653.50
|
-1670.20
|
-280.50
|
-376.40
|
EO
|
-82.50
|
-304.70
|
-28.10
|
-8.00
|
-2.40
|
PBT
after EO
|
-4232.10
|
-2958.20
|
-1698.30
|
-288.50
|
-378.80
|
Tax
|
-6.50
|
-15.80
|
2.70
|
-4.10
|
3.10
|
PAT
|
-4225.60
|
-2942.40
|
-1701.00
|
-284.40
|
-381.90
|
P/L
from discontinued operations
|
-5.30
|
0.00
|
0.00
|
0.00
|
0.00
|
PAT
after P/L from discontinued operations
|
-4230.90
|
-2942.40
|
-1701.00
|
-284.40
|
-381.90
|
Minority
interest
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
PAT
|
-4230.90
|
-2942.40
|
-1701.00
|
-284.40
|
-381.90
|
EPS
(Rs)*
|
-
|
-
|
-
|
-
|
-
|
*EPS
annualised is on post issue equity capital of Rs 64.83 crore of face value of
Rs 1 each
Figures in Rs crore
Source: One97 Communications (Paytm) Issue Prospectus
|
|