Paytm has revealed an ambitious IPO plan to raise $3 billion – the largest in India – to help it fend off competition from the likes of Google, Amazon, Wall Mart and Facebook
(AF) Paytm, India’s most valuable fintech start-up, has confirmed an ambitious IPO plan to fund diversification amid increasing competition from big-tech rivals Google, Amazon and Flipkart.
While reports of the IPO had emerged about two weeks back, which Paytm refused to comment on, in a letter to employees and other stakeholders on Monday the fintech said that it has received approval from its board to float India’s biggest IPO to date.
Paytm is finalising the draft red herring prospectus, which could be filed as soon as the first week of July, according to Bloomberg.
Paytm, whose investors include Ant Group, Softbank Group, and Berkshire Hathway, aims to raise $3 billion (Rs. 218bn) through the IPO, which would the largest IPO in India, and that could raise the company’s valuation to $30bn from $16bn now, according to CB Insights.
Coal India raised more than $2bn (Rs150bn) in 2010 making it the largest IPO up till now.
This isn’t the first time Paytm, one of India’s first e-commerce payment system and financial technology companies, has eyed the IPO route.
About a decade back, when it was a start-up, it had filed with the regulator to go public but cancelled the move and raised money from a venture capitalists instead to explore new avenues for growth.
In the next few years Paytm emerged as the largest mobile wallet firm and expanded into several more financial and commerce services.
In 2016, when India announced a sudden demonetisation that replaced high-value older currency notes with newer ones, creating an unprecedented liquidity squeeze in the economy, the fintech emerged as the undisputed leader in digital transactions.
However, since then, with the gradual entry of Amazon into e-commerce payments and Flipkart’s PhonePe and Google Pay in mobile proximity payments (MPP), Paytm has been facing intense competition from these tech giants in its mobile payments domain.
By adding a payments feature to WhatsApp recently, Facebook has also dented Paytm’s leadership position.
“Paytm faces intense competition from Google, Amazon and Flipkart in the Indian mobile payments market and, therefore, it has planned an IPO, diversify its businesses with the help of the raised IPO capital and thus, regain the lost market share,” Swati Verma, Associate Project Manager of Thematic Research at GlobalData, told Asia Financial.
According to GlobalData, India is one of the world’s fastest-growing mobile payment markets and offers a huge opportunity for both foreign and domestic players.
GlobalData forecasts the market will grow at a compound annual growth rate of 41% to reach $2 trillion in 2024, from $500bn in 2020.
“The funds raised from the listing will allow Paytm to diversify its offering,” says Verma.
Paytm is expanding beyond its core business and aiming to become a super-app like Alipay by integrating services like shopping, gaming, travel, insurance and investments.
It also runs an e-commerce platform (Mall) and a mutual fund service (Money). In November 2020, Paytm launched a mobile gaming platform, First Games, offering e-sports and fantasy sports.
In 2019, it acquired NightStay Travels, a hotel booking platform.
“With new funds, Paytm will be able to strengthen its position as a super app. It will also continue to invest in other digital themes like social media and digital media. These investments will help it to maintain a prominent position in the highly competitive Indian market,” Verma said.
Besides, Paytm reported a consolidated loss of $233.6 million as revenue fell 10% to $437.6m for the financial year that ended March 2021, down from $404 million a year ago.
Yet, Paytm is still a leader as a merchant payment ‘super-app,’ says analysts, around which it has built an ecosystem of synergistic fintech verticals.
This ecosystem spans payments (wallet/UPI), full-suite merchant acquiring, credit tech, digital bank, wealth and insurance tech.
Paytm has over 20 million merchant partners and its users make 1.4 billion monthly transactions, according to numbers from a recent company blog post.
“We believe the super-app battle in India is not a ‘winner takes all’ but a game of execution, business building, and creating a superior customer experience with ecosystem integration,” a Bernstein report noted.
In a recent conversation, CEO Sharma said Paytm had its best ever quarter in the first three months of this year after pandemic-related spending spurred digital payments.