ANALYSIS AND VALUATION OF PAYTM IPO-2
1]Conclusion and Perspectives on the IPO considering the current Market analysis
Paytm NSE 9.94 %, which listed on domestic bourses last week, said its gross merchandise value (GMV) — or payments made to merchants through its platform — jumped 131% to $11.2 billion last month from a year earlier.
It made a disappointing debut on the bourses Thursday when its shares tanked 27% from the IPO issue price to close at Rs 1,564.15 on the BSE. Investors and analysts have had reservations over Paytm’s ability to generate revenue from several of its business verticals where competition is increasing. According to Paytm, its lending and devices business has also seen continuous adoption in October with a total base of 1.4 million devices compared with 1.3 million at the end of September.
Without a doubt, Paytm has been one of the success stories of the previous decade that was marked by an unprecedented rate of digitisation of people’s lives. Paytm was at the right place at the right time to gain from this, scale-up and diversify its business. The more noise you make, the more you come under the radar. The same happened to Paytm. Analysts and investors do not see eye to eye with Paytm on the valuation of its IPO. The issue price of Rs 2,150 turned out to be a big spoiler for the fintech company that expected a mega subscription. At a time when ‘rightly’ priced IPO issues were getting subscribed 200–300 times followed by listings at 50–100% premium, Paytm IPO failed on both counts. While it got a tepid 1.8 times subscription, the share got pummelled on its debut on the exchanges as it closed day one with an around 27% fall.Even though investors have realigned their expectations from new businesses and do not expect immediate profitability, they sure look for business models that promise positive cash flow in future. It looks like investors do not see much of this from Paytm, at least in the medium term. And as its share price has already fallen to Rs 1,560 from the issue price, it will be interesting to see in the next couple of sessions what ‘fair’ value markets decide for Paytm.
2]Paytm’s listing failure: What it means for future IPOs
The market rout following Paytm’s debut on the exchanges has raised doubts around impending IPOs, including those of smaller rival Mobikwik and hotel aggregator OYO as valuations come under much closer investor scrutiny, Indian companies have raised a whopping $9.7 billion via IPOS during the first nine months of the year — the largest in corresponding periods in the last 20 years Following Zomato’s listing in July, its share price surged 66 per cent, while cosmetics-to-fashion platform Nykaa saw its stock skyrocket 80 per cent on its debut /But the overblown valuations of companies like Paytm point to a market trend that may be unsustainable. It may also dent investors appetite for risk and perhaps lead to increased investor caution over life insurance giant, LIC’s own IPO expected to be the largest Indian IPO in history -scheduled to take place at the end of March 2022.
Analysts who expressed concern over the IPO valuation of loss-making Paytm have cautioned that “frothy” valuations with unclear business models might not end up well in the current market. Point to note: Retail investors have already seen more than 35% of their value wiped out in just two trading sessions. While further losses may be in store for the stock, its real price discovery will happen once the 30-day lock-in period for anchor investors ends. Bharat Pe founder Ashneer Grover is confident that there will be no more fin-tech IPOs in the current market while IPOs of Ola and Oyo are also unlikely to see a stellar debut. “I am absolutely clear. This brings down the curtains on the IPO market for this cycle. Investors are sitting in the US. Those who want to invest in the Indian market will ask how the market is right now. Then they will ask how the biggest IPO has fared. That is 40 percent down. It was also the biggest start-up with the highest valuation.
3]Promoters Holding chart
4]Analysis of DRHP submitted to SEBI
FINANCIALS OF DIFFERENT STREAMS (AS PER DRHP DOCUMENTS):-
PayTM has separated their Company into three different Streams.they are as follows:-
We have an easy-to-use suite of payment services for consumers and merchants, which enables them to send and receive payments in a convenient, seamless and secure manner both online and in-store. According to RedSeer, We are the largest payments platform in India, with a GMV of ₹4,033 billion in FY 2021. We processed a total of 5.9 billion merchant transactions in FY 2021.
Commerce and Cloud Services
We provide a commerce lifestyle destination for consumers such as ticketing for travel and entertainment, and for gaming, food delivery, ride hailing and more. In FY 2020 we processed a total Commerce GMV of ₹142,230 million, which declined to ₹42,445 million in FY 2021 as a result of the impact of the COVID-19 pandemic on our commerce merchants. We offer commerce and cloud services, such as ticketing, advertising, mini-apps and loyalty solutions to our merchants that help them acquire and retain customers on and off the Paytm platform.
We provide financial services including digital lending, mobile banking, insurance, and wealth management for consumers and merchants. For FY 2021, we processed a total of 2.6 million loans through our financial institution partners. We provide most of our financial services through our financial institution partners.
5]Risk Factors Involved
1. They have a history of net losses, and They may not be able to achieve profitability. Moreover, they have experienced negative cash flows in prior years
2. In the event that their payment processing charges payable to financial institutions and card networks increase significantly, and They are not able to pass on these higher processing charges to their merchants or consumers, they may not be profitable.
3. They offer some of their services in partnership with their Group Company, Paytm Payments Bank. Any failure by Paytm Payments Bank to support these services could adversely impact these services and could impact their overall business, financial condition, and results of operations.
4. If They are unable to attract merchants to their ecosystem and retain consumers, grow their relationships with their existing merchants, and increase transaction volumes on their platforms, their business, results of operations, financial condition, cash flows and prospects could be materially and adversely affected.
5. They derive a majority of their revenue from their payment services. Their efforts to expand their service offerings and market reach may not succeed and may impact their revenue and their growth.
6. Payments banks in India, including their Group Company Paytm Payments Bank, are subject to regulatory requirements and prudential norms and its inability to comply with applicable laws, regulations and norms may have an adverse effect on some of their businesses, financial condition and results of operations.
7. They rely on third parties for certain aspects of their business, which creates additional risk, and the failure of third parties to comply with legal or regulatory requirements or to provide various products and services that are important to their operations could have an adverse effect on their business, results of operations, financial condition, and prospects.
8. There are pending litigations against their Company, Subsidiaries, and certain of their directors.
9. They are subject to chargeback and refund liability risk when their merchants refuse to or are unable to reimburse chargebacks and refunds resolved in favour of their customers. Any increase in chargebacks and refunds not paid by their merchants may adversely affect their business, financial condition, cash flows or results of operations.
10. They rely on their financial institutions partners to provide their financial services and products, and any failure to maintain their relationships with them could have an adverse impact on their operations.
11. They participate in markets that are competitive with continuously evolving technology and consumer needs, and if They do not compete effectively with established companies and new market entrants, their business, results of operations, cash flows and financial condition could be adversely affected.
12. The success and growth of their business depends upon their ability to innovate and develop new products and services. They are expanding and may in the future continue to expand into new industry verticals and geographic regions and their failure to mitigate specific regulatory, credit, and other risks associated with a new industry vertical or geographic region could have an adverse effect on their business.
13. They don’t have sufficient insurance coverage to cover their business risks.
14. Acquisitions, strategic investments, entries into new businesses, and divestitures could disrupt their -business, divert their management’s attention, result in additional dilution to their shareholders, and harm their business.
15. They are exposed to many types of operational risk.
16. Changes in the taxation system in India could adversely affect their business.
17. They are, and after the Offer will remain, a “foreign-owned and controlled” company in accordance with the Consolidated FDI Policy and FEMA Rules and accordingly, they shall be subject to Indian foreign investment laws