India's biggest IPO Uncovered - PayTM

The PayTM IPO is creating a lot of noise. Let's understand the IPO and make sense of the facts being thrown around.

18th November 2021
3 min read

In a nutshell

PayTM is raising 18,300 crores at >INR 1 lakh crore valuation ⇒ Biggest ever IPO in India

Existing investors are selling shares to the tune of ~10,000 crores

PayTM is still loss-making and has been able to list in India due to SEBI allowing such companies to list in India

While it has shown strong top-line growth, it is in a highly competitive space which also faces uncertainties from regulators.


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 :)

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?

    Well, technically NO! It's the parent company, One97 Communication that's being listed.

  3. Where does this money even go?

    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
  4. Which existing shareholders are selling their shares?

    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.
  5. Sounds risky - how does PayTM ensure that the IPO goes through successfully?

    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

    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.

  2. Still heavily loss-making

    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.

  3. Are loss-making companies allowed to IPO?

    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.

bulb

Startups never "fail" in the first year of their existence. Their founders lose motivation to stay in the fight.

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 :)

1
Comments
You'll love these articles too!
NoBroker battles COVID-19 to become India’s first property-tech Unicorn
NoBroker battles COVID-19 to become India’s first property-tech Unicorn
Paytm Business Model: An Overview of How Paytm Business Operation and Revenue Creation
Paytm Business Model: An Overview of How Paytm Business Operation and Revenue Creation
Tata's new Super App will compete with Amazon, Jio & Flipkart!
Tata's new Super App will compete with Amazon, Jio & Flipkart!
Bootstrapped startup Zerodha beat VC-backed Upstox to become the largest stock broker in India!
Bootstrapped startup Zerodha beat VC-backed Upstox to become the largest stock broker in India!

NoBroker battles COVID-19 to become India’s first property-tech Unicorn

NoBroker began in a crowded yet large industry, to build a tech-based, brokerage-free real estate platform.

Like its competitors, finding profitability has been tough - while it has tripled its revenue each year, even in FY20 its losses were almost 3 times its revenue!

Yet, the company raised $210 million, last week, raising its valuation from $350 million (in April 2020) to $1 billion, becoming India’s first prop-tech unicorn.

VCs have still shown interest, likely due to the general positive funding climate, but also because of NoBroker's foray into gated society software, NoBrokerHood, that shows potential for various business models to be laid on top of it.

The plans to aggressively expand into 50 cities and to build its software platform are interesting moves, but this remains a tough & competitive space. So, only time will unfold its future outcome :)

Tata's new Super App will compete with Amazon, Jio & Flipkart!

Tata is a 153-year-old conglomerate company. It has managed to stay relevant for so long by expanding into new industries & making shrewd acquisitions.

However, it still relies heavily on TCS, which brings in 75% of profits for Tata!

While late to the startup party, Tata is making amends by acquiring already scaled startups like BigBasket, CureFit & 1mg.

The grand plan is to build a Super App — OG = WeChat, the Chinese Super App. Of course Tata is not alone, and faces stiff competition in this regard from the likes of Amazon, Reliance & PayTM.

Bootstrapped startup Zerodha beat VC-backed Upstox to become the largest stock broker in India!

Upstox and Zerodha are very similar businesses on the surface:
- Both were started by brothers
- They both were launched after the 2008 crisis
- They also follow the same pricing structure & the ZERO brokerage fee model.

But, although these businesses are so similar, the results they produce are extremely different! Zerodha makes Rs. 1122 Cr profits while Upstox makes INR 72 Cr in losses. This is when their no. of users is very close, 5.5M for Upstox and 6.2M for Zerodha!

This is because of Upstox massive marketing spend. It spent INR ~49Cr on IPL ads this year and they approximately get a return of INR ~9.8 Cr. So they are approximately burning INR 787 to get ONE user!

But, that's not it - 70% of Upstox's users are first time traders who buy stocks and sell them when their price increases. These equity investments only account for 1% of all transactions. So, they are mostly not reliable.

On the other hand, Zerodha has completely focused on getting serious intraday traders who account for the rest 99% of transactions. That's the main reason why Zerodha's revenue is SEVEN times that of Upstox, while their active users are almost the same.