India’s Paytm opened its initial public offering (IPO) for subscription on November 8, 2021. The IPO will close on November 10, 2021. The offering is dubbed as one of India’s biggest IPOs.
Paytm opens IPO at a price band of INR 2,080-2,150 range
Paytm – an Indian home-grown digital payments portal has been among the most eminent beneficiaries of the Indian demonetization that took place in November 2016 when Prime Minister Narendra Modi stripped out all INR 500 and INR 1000 banknotes to fight black money and initiate digital transactions in the country.
Paytm’s IPO of around INR 18,300 crore (USD 2,469,852.18) has already witnessed a 45% subscription of the issue in the anchor round. 75% of the IPO is set aside for qualified institutional buyers (QIBs) and there are good probabilities that the issue will sell out.
Long-tenure investors, who strive to vouch for the digitization of investments, payments, and financial solutions, and are keen to look beyond the losses and challenging competition in the predictable future, probably seek to subscribe to the IPO issue. Investors need to estimate the budding addressable market with questionable valuations for the loss-enduring company, which might look extended to some.
Paytm is the biggest digital payments portal in India, with a gross merchant volume (GMV) of more than INR 4 lakh crore in the fiscal year of 2021. It delivers payment facilities, cloud and commerce services, and financial services to around 5 million consumers and more than 300,000 merchants enumerated on the platform as of June 2021. Paytm’s revenue from financial and payment services vouched for 75.3% in the fiscal year of 2021. The firm also witnessed a market share of around 40% in mobile payments transaction capacity and around 70% in the case of wallet transactions, in the fiscal year of 2021.
Choice Equity Broking stated that there was a vast sector of the Indian population that does not get to enjoy the benefits of the payment and financial service products. Also, there is a major population of Indian SMEs that have not been delivered the benefits of digital commerce. Paytm, hence, has a vast addressable market to provide for, the brokerage firm said.
Senior Research Analyst at Equitymaster, Richa Agarwal, stated that in the fiscal year of 2021 (year of the COVID19 pandemic) the utilization of mobile payments and digital wallets increase. However, Paytm reported a depreciation in revenues. Despite a 60% recession in promotional and marketing expenditure, the losses constantly increased and the freeway to profitability remained wavering. Whilst it was highly probable to be a profitable IPO, from a long-tenure viewpoint, the IPO issue maintains a speculative investment bet, Agarwal said.
Professor of Finance at the Stern School of Business (New York University), Aswath Damodaran, stated in a blog in October 2021 that he expected operational profits for Paytm to emerge positive and the operating margin to advance 5% in 2026. He estimated the stock’s value to be INR 2,190.24 (USD 29.60), which was a tad more than the price range of INR 2,080 (USD 28.11) to INR 2,150 (USD 29.06).
Paytm has witnessed its revenue share of gross merchant volume slip to 0.79% in the fiscal year of 2021 from 2.18% in the fiscal year of 2017, as the firm has favoured acquiring users.
Arihant Capital stated that the surging pace of digitalization prevails to present an essential opportunity to mature the user base for online transactions of shopping, entertainment, bill payments, and other fiscal necessities. Minting via wider financial service offerings through the vastly installed consumer-merchant base of Paytm will serve as a chief opportunity for the firm and would enhance profitability. The brokerage firm also indicated that the overall monetary worth of the firm weighed on the positive side through this IPO listing.