Paytm IPO: Indian Digital Payments Firm Files for $2.2 Billion Offering

Paytm Files for $2.2 Billion IPO in India

Paytm, a leading digital payments provider and one of India’s most highly valued startups, has submitted preliminary documents to the country’s market regulator outlining plans to raise up to $2.2 billion through an initial public offering.

Details of the Offering

The Noida-based company, which receives backing from investors including Alibaba, Ant Financial (collectively owning 36% of Paytm), Berkshire Hathaway, and SoftBank (holding approximately 18% stake), intends to issue new shares valued at $1.1 billion. An additional $1.1 billion will be generated through an offer for sale.

Previously considered India’s most valuable startup, Paytm has indicated a potential to secure up to $268 million in a pre-IPO funding round. Reports from TechCrunch earlier this month detailed discussions with Goldman Sachs and Fidelity regarding this potential pre-IPO investment.

Capital Allocation and Growth Strategy

The startup, which directly competes with PhonePe and Google Pay within the world’s second-largest internet market, plans to utilize $577 million of the newly acquired capital to expand its existing payments services. Approximately $269 million will be allocated to pursuing new ventures and exploring potential acquisition opportunities.

Launched in 2009, Paytm initially focused on simplifying digital payments and mobile recharge services. Over the past decade, the platform has significantly broadened its offerings to encompass a payments gateway, an e-commerce marketplace, ticket booking services, and the sale of insurance and digital gold. Paytm currently holds a leading market position in several of these sectors.

User Base and Merchant Network

As of the latest filings, the platform – formally known as One97 Communications and previously valued at $16 billion – has accumulated over 333 million registered users. A substantial portion, 114.3 million, engage in annual transactions. Furthermore, the company has onboarded more than 21 million merchants.

Paytm’s Vision and Services

Led by Vijay Shekhar Sharma, Paytm positions itself as a “payments-led superapp,” dedicated to delivering innovative and user-friendly digital products and services to its consumers.

The company offers a diverse range of payment options through its app, including Paytm Payment Instruments (digital wallets, subwallets, bank accounts, buy now, pay later, and wealth management accounts) and support for major third-party methods like debit/credit cards and net banking.

IPO Timing and Market Context

Paytm’s IPO plans coincide with a period of significant growth in India’s digital economy, accelerated by the pandemic. Indian stock exchanges are demonstrating increased interest in consumer technology companies. The recent $1.3 billion IPO of food delivery giant Zomato was fully subscribed within hours.

Financial Performance

A successful IPO is crucial for Paytm, a highly celebrated Indian startup. The company reported a consolidated loss of $233.6 million for the financial year ending in March 2021, an improvement from the $404 million loss recorded in 2020.

Competition and Other IPOs

This week, MobiKwik, a competitor backed by Sequoia, also filed for an IPO, seeking to raise approximately $250 million. Other potential listings in the coming quarters include SoftBank-backed e-commerce leader Flipkart, insurance aggregator PolicyBazaar, makeup retailer Nykaa, and delivery startup Delhivery, which recently secured a $100 million investment from FedEx.

Analyst Outlook

Analysts and bankers express optimism regarding Paytm’s prospects. While its mobile wallet business has experienced a decline in recent years due to the rise of UPI – a bank-backed payments framework – Paytm has demonstrated resilience.

Analysts at Bernstein noted that while UPI’s growth has challenged the dominance of mobile wallets, Paytm maintains a leading position in merchant payments and has cultivated a robust ecosystem of interconnected fintech services around its superapp.

This ecosystem encompasses payments (wallet/UPI), comprehensive merchant acquiring, credit technology, digital banking, wealth management, and insurance technology. Bernstein analysts believe the “superapp battle” in India will be determined by execution, business development, and the creation of a superior customer experience through ecosystem integration.

Potential Risks for Investors

Potential investors should be aware of certain risk factors. Paytm acknowledges that it is a “foreign-owned and controlled” company and will remain so after the IPO, subjecting it to Indian foreign investment regulations.

The company also disclosed past “violations” of laws and regulations within its wealth management vertical, Paytm Money. Additionally, several of Paytm’s largest investors intend to sell portions of their holdings during the IPO.