India's biggest IPO Uncovered - PayTM

The PayTM IPO is creating a lot of noise. Surely everyone around you is talking about it. Well, why not, it is the BIGGEST ever IPO of India. This moment of celebration comes 20 years after Vijay Shekhar Sharma founded One97 Communications, the company that owns the PayTM brand.

So, instead of just drowning yourself in the noise, let's:

  1. Actually understand the IPO
  2. Make sense of the facts being thrown around
  3. Try to develop an opinion on all of this :)

TL;DR

  1. PayTM is raising 18,300 crores at >INR 1 lakh crore valuation ⇒ Biggest ever IPO in India
  2. Existing investors are selling shares to the tune of ~10,000 crores
  3. PayTM is still loss-making and has been able to list in India due to SEBI allowing such companies to list in India
  4. While it has shown strong top-line growth, it is in a highly competitive space which also faces uncertainties from regulators.

Understanding the IPO

Many facts and opinions might be coming your way. Let's make sense of them all:

  1. IPO Size: INR 18,300 crore
    • Basically, this is the total value of shares being sold to the public
    • This is NOT the valuation of the company, which has actually crossed INR 1 lakh crore
  2. Is it even PayTM's IPO?
  3. Well, technically NO! It's the parent company, One97 Communication that's being listed.

  4. Where does this money even go?
  5. Great question, there is usually a lot of confusion around this:

    • To the Company
      • INR 8,300 crores will go to the company's war chest for future growth
      • This happens in an IPO from the "new shares" issued by the company
    • To the existing shareholders
      • INR 10,000 crores will go to the existing investors like the Ant Group, Softbank, etc.
      • In essence, they are selling a part of their shares and reducing their stake in PayTM
  6. Which existing shareholders are selling their shares?
  7. Vijay Shekhar Sharma, SoftBank, Ant Group, Alibaba and Elevation Capital are some prominent investors reducing their holding in PayTM

    • This is not an unusual practice. Many of the big investors and founders use the IPO as an opportunity to get some cash for the shares they own in the company.
    • Usually though, such large investors don't sell all their shares. It is important to show that they believe in PayTM's future growth.
  8. Sounds risky - how does PayTM ensure that the IPO goes through successfully?
  9. Yaa, IPOs are tough. Companies address this by:

    • Hiring an Investment Bank which evaluates demand and prices the shares accordingly
    • Having "Anchor investors" (huge funds) to commit to a bulk of the amount upfront
      • In PayTM's case ~INR 8,000 crore was already committed by such investors which included Singapore's GIC, BlackRock, Abu Dhabi Investment Authority, among others

Is PayTM that big? Is it profitable? So, many questions!

  1. Topline GMV is growing strong
  2. The absolute topline metric measured by PayTM is its "GMV" or Gross Merchandise Value and that's almost doubled from INR 2.3 lakh crores in FY 2019 to INR 4.03 lakh crores in FY 2021.

  3. Still heavily loss-making
  4. It is NOT a profitable company. It lost ~INR 4,200 crores in FY 2019, but has decreased losses to ~INR 1,700 crores in FY 2021.

  5. Are loss-making companies allowed to IPO?
  6. Well, earlier it wasn't and most companies had to list their shares outside India. But the SEBI (Securities Exchange Board of India) made the change to allow such companies to list in India - 75% of such shares have to be held by institutional investors (big organizations) though.

Is this exciting? What's the future here?

An IPO is a moment of celebration - most companies fail LONG before they get to this stage. So, PayTM getting here is a huge moment for the company.

For India, we see yet another tech startup unicorn list in the country. Not just that it is the biggest IPO India has ever seen!

OK, I'm happy - but, is it worth it?

Having said that, PayTM is still loss-making and for individual (retail) investors, valuing such a company is not going to be straightforward. However, SEBI changed the rules to allow such companies to IPO in India, so that we don't lose them to other countries.

Now, I am no financial analyst, but just as an entrepreneur myself, here's how I see it:

  • PayTM continues to show strong top-line growth. But it is a SUPER competitive space - whether it will keep growing this strongly is something we will have to see.
  • Lot of its growth depends on the "financial services" category (marketing credit cards, insurances, etc.). These are tricky industries which can be adversely affected by regulations.
    • For e.g. Ant Group (also an investor in PayTM), which is in a similar industry in China, had to cancel its IPO last year due to a crackdown by the government.

Overall, irrespective of the initial results, this is a landmark moment in the Indian startup ecosystem's history. Let's enjoy it and take it all in :)

Karthik Sridharan

Karthik is building Flexiple, a tech talent network, which has already crossed $3 million, entirely bootstrapped. He shares learnings from experiences - no BS.

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