Paytm IPO: All You Need To Know About One97 Communications
One97 Communications Ltd., which runs the payments platform Paytm, will open its initial public offering on Monday, aiming to raise Rs 18,300 crore, making it the biggest maiden offer in Indian market history. The three day offer closes on Wednesday, where investors can buy shares within a price band of Rs 2,085-2,150 per share.
The IPO is a fresh issue of shares worth Rs 8,300 crore and an offer for sale by existing shareholders worth Rs 10,000 crore. The offer is expected to value One97 Communications at $20 billion (approximately Rs 1.5 lakh crore).
The main investors selling their stake in the offer for sale include Antfin (Netherlands) Holding BV, which is selling Rs 4,700 crore worth shares, SVF Panther (Cayman) Ltd. selling Rs 1,689 crore worth shares, Alibaba.com Singapore ECommerce Pvt. which is selling shares worth Rs 785 crore and founder Vijay Shekhar Sharma who is selling shares worth Rs 402 crore, as per the regulatory filing.
Face Value: Re 1 per share
Price Band: Rs 2,085 - 2,150
Fresh Issue: Rs 8,300 crore
Offer For Sale: Rs 10,000 crore
Lead Managers: Morgan Stanley India, Goldman Sachs (India) Securities, Axis Capital, ICICI Securities, JP Morgan India, Citigroup Global Markets India and HDFC Bank.
One97 Communications, or Paytm, is in the financial services business, focusing primarily on digital transactions. Apart from this, the company also lends to customers and merchants through lender partners, and also retails insurance, mutual funds and gold investments through tie-ups.
It is also entering direct sale of insurance products through its acquisition of Raheja QBE.
Over the last three years, payment services have contributed a much larger share of One97 Communications' revenue — rising up to three-fourths in FY21.
The company continues to have the widest spread of business across India's payment ecosystem. It offers payment services, commerce and cloud services, and financial services to 33.3 crore consumers. It has a total merchant base of 2.1 crore. It reported a gross merchandise value (GMV) of Rs 4.33 lakh crore in FY 2021 across platforms.
"We help our merchants grow their business by giving them solutions that allow them to accept payments, acquire and retain consumers, improve their business operations and access financial services," Paytm said in its draft red herring prospectus.
While it continues to offer loan products through partnerships, the company will not apply for a non-bank finance license, Sharma had said during a press conference last month in which he announced the IPO. Paytm Payments Bank, the only banking entity within the Paytm ecosystem, may opt for a small finance bank license, Sharma had said.
One97 is currently a loss-making entity and expects to remain so in the forseeable future by the company's own admission.
"We expect to continue to incur net losses for the foreseeable future and we may not achieve or maintain profitability in the future," the prospectus said.
It reported a consolidated loss of Rs 1,701 crore in FY21 compared with Rs 2,942 crore in FY20. In the first quarter of FY22, revenue from operations rose 62% year-on-year, the company said in its prospectus. The consolidated loss for the three months ended June stood at Rs 381.9 crore.
The measure One97 prefers to highlight is contribution profit and margin.
Contribution profit is calculated as revenue from operations less variable costs, such as payment processing charges and marketing or promotional expenses. Contribution margin is the percentage margin derived by dividing contribution profit by revenue from operations.
By this metric, the company turned a contribution profit in FY21.
Objects Of The Offer
Through the funds it will raise in the IPO, Paytm intends to:
Grow and strengthen the Paytm ecosystem, including through acquisition and retention of consumers and merchants and providing them with greater access to technology and financial services.
Invest in new business initiatives, acquisitions and strategic partnerships.
Spend on general corporate purposes.
The key risks to the offer include:
Changing regulatory framework in India, which may add further compliance cost in the future.
Recessionary economic cycles, a protracted economic slowdown, a worsening economy, increased unemployment, rising interest rates or other industry-wide cost pressures could also affect consumer behavior and lead to a decline in Paytm's sales and earnings.
The growth in the number of merchants working with Paytm may fall owing to factors beyond the company's control, including business closures, bankruptcy, financial distress, transfers of merchants’ accounts to competitors, cancellations and account closures.
Any weakness in Paytm's technology infrastructure or that of its partners could deeply affect its business. Further, any data breach could severely impact the future of the business.
The company continues to report financial losses and cannot assure potential shareholders about when it may turn profitable.
Watch | IPO Adda with Paytm's Vijay Shekhar Sharma and Madhur Deora: