ANALYSIS AND VALUATION OF PAYTM IPO-1
Digital payments and financial services firm Paytm on Wednesday(3 Nov 2021) raised ₹8,235 crore from anchor investors ahead of its initial share sale. The anchor investor round saw participation from Blackrock, CPPIB, Birla MF, GIC and other blue-chip funds leading to 10 times oversubscription of the shares, as per a stock exchange filing.
With this, Paytm has already secured 45 per cent of its ₹18,300 crore initial public offer (IPO). The company is selling nearly half of its 18,300 crore IPO to the anchor investors.
1] . Understanding the Business Model of the Company (B2B & B2C Segments)
·Paytm or “Payment Through Mobile” is India’s largest payment, commerce, and e-wallet enterprise. It started in 2010 and is a brand of the parent company One97 Communications.com founded by Vijay Shekhar Sharma.
· It was launched as an online mobile recharge website and went on to transform its business model to a virtual and marketplace bank model. The company stands today as one of India’s largest online mobile services that includes banking services, marketplace, mobile payments, bill payments, and recharge. It has so far provided services to over 100 million users.
Value Proposition of Paytm
Some of Paytm’s more prominent propositions was its recharging business which was the company’s initial service proposition. Then it went on to diversify and advance to producing newer services from the likes of Paytm Wallet, E-commerce vertical to Digital Gold, These have garnered the Chinese giant Alibaba’s blessings who donated huge sums of money to the organization, thereby increasing its investment potential. Paytm utilized cricket and TV advertising to reach more customers.
Paytm is presently available on six different domains. Let’s take a look at the company’s business strategy based on its current position in FY21. It has two sides: consumer and merchant, with substantial usage in bill payments and money transfers on the consumer side. Consumers are engaged and retained through products like Paytm wallet, postpaid, bank, and FASTag, and these customers are then utilized to monetize insurance, personal loans, and investments. In-store QR codes or an online payment gateway are the most common options for merchants to be onboarded.
Soundbox, POS devices, and the Paytm business enable retailers to attract and keep customers and are monetized through merchant loans, advertising, and cloud services.
- Paytm Business Model is a marketplace-cum-payments-bank business model which also deals in recharge & bill payments and provide users with an e-wallet and reservation/booking options.
- Paytm Revenue Model can be divided into the following categories.
- Marketplace (Paytm Mall)
- Recharge Services
- Bill Payments
- Payment Solutions
- Paytm Wallet
- Digital Gold
- Paytm Bank
2]Economy, Industry & Competitor analysis
With over 100 million users a year ago, PayTM was already ahead of its digital payment competitors before the Nov. 2016 due to demonetization of high value currency notes in India and also the Revolutionary Jio Digitalised a lot of People in the Country.
On the back of the push for #CashlessIndia consequent to #CurrencySwitch, the Alibaba-backed mobile wallet has increased its lead over its other mobile wallets (e.g. MobiKwik, PayZapp) and account-to-account money transfer apps (e.g. UPI). Today, PayTM boasts 150M users (Source: Wikipedia).
1. Ease of Onboarding Merchants
Merchants can sign up for PayTM without a bank account. They can receive money into their PayTM wallets without a bank account. They can even spend their wallet balance by shopping at other merchants that accept PayTM payments. It’s only when they want to cash out their money from their PayTM account that they need a bank account.
As a result, PayTM was / is able to sign up hundreds of thousands of merchants that don’t have bank accounts. These merchants could sign up for PayTM as soon as they had a compelling need to accept cashless payments i.e. immediately after the demonetization announcement, start accepting payments and visit banks later to open their accounts after their PayTM account balances started growing.
Contrast this with competing e-wallets, which insist that merchants link their bank accounts (or debit cards or credit cards) to their apps right at the time of installing them. As a result, financially-excluded merchants couldn’t sign up for them when they had a compelling need. PayTM’s rivals lost this market to PayTM.
2.Feet On Street Approach
PayTM salespersons made daily rounds in retail hotspots asking storekeepers if they wanted PayTM.
3. Frictionless Payments
By design or default, the Sign Out link in PayTM’s mobile app is buried deep inside the app. As a result, many users have never seen it and stay logged into their app all the time. This means they’re able to make a payment without a password or PIN.
This creates a significant security vulnerability in PayTM. But it also makes PayTM’s CX that much more frictionless, which makes a lot of difference when people use it many times a day.
Security is a hygiene factor. Convenience trumps security.
PayTM’s Competitors in Different Sectors and their Position in that segment
IN B2C Sectors:-
Competitors:- MobiKwik, Razor-pay, Google Pay, Phone Pe,Bharat pe,Amazon pay and every other UPI and Wallet Services.
Introduction of UPI in 2018 disrupted a lot in losing B2C Users for PayTM and they wantedly lost this segment as they know they can’t find a way to gain Profits in mere Transactions between Bank Accounts.
3] TEXT ANALYSIS USING WORDCLOUD
The WordclouD is mad consists the most frequently occurring words in the recent news blogs.The size of the word indicates how much frequently the words occurring
4]Why have prominent investors such as alibaba and berkshire hathway invested in Paytm IPO.
· The Noida-based company said last month(month of september) that it conducts 5 billion transactions worth $50 billion in gross transaction value (GTV) on an annualized basis based on its performance in June. It saw total income increase by 38% to Rs 828 crore with losses of Rs 899.6 crore in the year ending March 2017, according to Registrar of Companies (RoC) filings.
· India’s leading digital payment service platform.
· Strong brand identity with a brand value of US$6.3 billion.
· Large customer base with 333 million total customers, 114 million annual transacting users, and 21 million registered merchants.
· Paytm Super-app to access a wide range of digital payment services over mobile phones.
· paytm is also a fully licensed digital bank and has launched insurance, wealth management as well as cloud and commercial services.
· Just before the 72nd Independence Day Paytm partnered with SoftBank to launch its wallet service in Japan to grow eminently and extend its presence all over the globe.This development can put Paytm to establish as a trusted brand in the US and nearby market. Also, it’s quite a boost in the Indian startup ecosystem.
Ali Baba/Ant Financial
· Ali Baba is one of the early investors in the company and Alibaba co-founder and chairman Jack Ma, who still owns a stake in Ant Financial, has said that he is interested in making more investments in India, in part because Indian suppliers are the second-biggest users of Alibaba’s sites after users from China.
· Paytm says it will use Ant Financial’s investment to grow its mobile payment platform and acquire more users for its online commerce business. In turn, the strategic agreement allows Ant Financial to take a stake in India’s rapidly growing e-commerce market, which is expected to reach $6 billion this year, a 70 percent increase over its 2014 total revenue of $3.5 billion, according to Gartner.
· “With over one billion people, India’s payments market has vast untapped potential. As smartphone use continues to rise in India, we see great opportunity in the mobile wallet space and Paytm, as a leader in this field, is best equipped to build a mobile payments ecosystem in the country,” said Ant Financial vice president Cyril Han in a prepared statement.
· US Based Billionaire investor Warren Buffet’s companyBerkshire Hathway (BRKA) has bought a stake in Paytm, one of the largest digital payment company in India. Berkshire Hathaway has invested 2500 crores in Paytm, whose parent company is one97 communication. However, the report claims that warren buffet was not involved personally in the current deal. Todd Combs, one of Berkshire’s key fund managers is seen as a potential chief investment officer and leading the transaction. The deal will value one97 at $10 Bn.This investment by Berkshire is considered to be its first investment in India.
· Berkshire had tried its hand in India in 2011 with Bajaj Allianz general but exited two years later due to lack of profitability. This would be his first investment in tech led company who is supposed to be moving towards profitability soon.
· In May, Buffett had indicated an interest in the financial payments industry at an annual shareholders meeting, saying the sector was a huge deal around the world and that many companies were working to reinvent the space.
· One of Buffett’s investment deputies, Todd Combs, seen as a potential chief investment officer at Berkshire, was leading the Paytm deal and has been given a seat on its board, the company said on Tuesday.
An IPO may be the first time the general public can buy shares in a company, but it’s important to understand that one of the purposes of an initial public offering is to let early investors in the company cash out their investments.
Think of an IPO as the end of one stage in a company’s life-cycle and the beginning of another — many of the original investors want to sell their stakes in a new venture or a start-up. Alternatively, investors in more established private companies that are going public also may want the opportunity to sell some or all of their shares
“The reality is that there’s a friends and family round, and there are some angel investors who came in first,” says Matt Chancey, a certified financial planner (CFP) in Tampa, Fla. “There’s a lot of private money — like Shark Tank-type money — that goes into a company before ultimately those companies go public.”
There are other reasons for a company to pursue an IPO, such as raising capital or boosting a company’s public profile:
· Companies can raise additional capital by selling shares to the public. The proceeds may be used to expand the business, fund research and development or pay off debt.
· Other avenues for raising capital, via venture capitalists, private investors or bank loans, may be too expensive.
· Going public in an IPO can provide companies with a huge amount of publicity.
· Companies may want the standing and gravitas that often come with being a public company, which may also help them secure better terms from lenders.
While going public might make it easier or cheaper for a company to raise capital, it complicates plenty of other matters. There are disclosure requirements, such as filing quarterly and annual financial reports. They must answer to shareholders, and there are reporting requirements for things like stock trading by senior executives or other moves, like selling assets or considering acquisitions.
In Paytm’s case:
· The company plans to raise Rs 8,300 crore through fresh issue of equity shares and another Rs 8,300 crore through the offer-for-sale route.
· Paytm says it plans to use Rs 4,300 crore of the fresh issue to expand its existing business lines and acquire new merchants and customers.
· Paytm plans to earmark Rs 2,000 crore for business initiatives, acquisitions and strategic partnerships and up to 25% for general corporate purposes.
· The company is expecting a valuation of USD 20-USD 22 billion and at last fundraise it was valued at USD 16 billion.
· The company has been in discussions with some foreign investors, including Singapore’s GIC and ADIA to participate in the IPO this will provide it a platform to go global in the upcoming years.