9/26/2023 0 Comments Sources indian paytm 3b ipo 29bPaytm is one of India’s largest digital payments companies with around 337 million users, 50 million of whom are active monthly users. It counts China’s Ant Group, Softbank’s Vision Fund, and Berkshire Hathaway among its investors. Paytm, the fintech company that Indians use for daily services like buying groceries and paying their electricity bills, narrowed its operating loss to INR16.55 billion ($220.6 million) in the financial year that ended March 2021 from INR 24.68 billion ($329 million) a year ago. Paytm is the second notable loss-making company after food delivery firm Zomato to raise money on Indian exchanges. But for that to happen, the company needs to consistently improve its take rate.Paytm’s shares were trading at a discount of 27.3% or INR 1564 ($21.15) per share at 1514 Indian Standard Time after opening at INR 1955 ($26.4), down from the issue price of INR2150 ($29). ![]() Damodaran has put Paytm’s fair valuation at $20 billion, close to what the company has indicated in its IPO. This puts its valuation at ₹1.39 trillion post issue at the upper end of the price band, making it the eighth largest Indian company by market capitalization. ![]() The company is selling shares at ₹2,080-2,150 per share. It is this niggling trouble over revenues and profits that makes it challenging for analysts to justify Paytm’s valuation at its IPO. “The picture that emerges of Paytm is that of a management that is too focused on racking up user numbers, and too distracted to care about converting those into revenues and profits, while making grandiose statements about its future," he wrote. Aswath Damodaran, professor of finance at the Stern School of Business, pointed out in a 4 October blog post that revenue as a percentage to GMV (take rate) has dropped sharply in FY21. During the same period, the company’s gross merchandise value (GMV) has jumped to ₹4.03 trillion in FY21 from just ₹35,000 crore in FY17. Even so, revenues from payments and financial services which houses its entire gamut of digital offerings have hardly grown in the past five years. To be sure, the revenue drop was driven by its commerce and cloud vertical, while revenues from payments and financial services grew 10.6%. But Paytm’s revenues dropped in FY21, resulting in a net loss of ₹1,701 crore. It also gets a cut from merchants in addition to charges on using its point-of-sale (PoS) machines. Other revenue sources are selling third-party products and the new line of buy now, pay later (BNPL) credit. To elaborate, Paytm gets a cut every time a consumer does a money transfer, or pays through the app for purchases or utility bills. The company earns money by charging fees from its customers and merchants for every digital transaction they make on its platform. Paytm must get more bang for its buck with every transaction, which is easier said than done. This means that mere volume growth won’t cut it. What’s more, Unified Payments Interface (UPI), introduced in 2016, has brought down transaction costs for Indians, making digital payments the cheap commodity they are. As mentioned earlier, India’s digital space has exploded after 2016. The company has 40% market share in mobile transactions, dwarfing most large competitors.īut volumes growth gives less benefits when the service offered is a cheap commodity in an intensely competitive market. Paytm’s ticket to digital glory lies in its relentless growth of transaction volume. This gives the company an edge, according to analysts. “Paytm is the only payments company in India that, together with their affiliates, owns each layer of the payment stack," said analysts at Axis Capital Ltd in a note. ![]() But demonetization resulted in an explosion of digital payments providers in India. To be sure, the company leapfrogged in digital payments after the government rendered 86% of currency notes worthless through demonetization in November 2016. Perhaps it is this growth that big investors are betting on. ![]() Analysts believe that Paytm’s strength is its ability to keep up the pace of customer and merchant acquisition over the past several years. It is a market leader in mobile payments, wallets and its merchant base. Its platform has 337 million registered customers and 21.8 million merchants. What do investors get with an exposure to Paytm? Formally known as One97 Communications Ltd, Paytm started as a mobile wallet company and has morphed into a one-stop shop for all digital payments.
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