The much talked about as the largest Initial public offering (IPO) worth Rs 18,300 crore - PayTM - managed to get full subscription on the third day of bidding process. Despite this a section of the market expects Paytm to have a bumper listing next week and expects it to be one of India’s most valued companies with over USD 20 billion market cap.
It is all fair to be compared with other startups which listed recently with such large over-subscriptions and global investor interest. PayTM’s low subscription reception at the bourses is a contrast to the issues of Nykaa and Policy Bazaar. How it builds-up its business as a listed entity is the actual story that would be watched.
Company
Paytm founded by a first-generation Indian entrepreneur is a story worth telling. And a story much written about already, across media and spoken in webinars. It started as a mobile wallet in 2009-10 and has now diversified into a Financial Services platform. In its fold it has Paytm Payments Gateway, Paytm Payments Bank, Paytm Payout, Paytm Money, Paytm Insider, Paytm Insurance, Paytm Postpaid (Buy Now Pay Later), Paytm for Business, Paytm Credit Cards, Paytm First Games along with utility bill payments, offline merchant payments, rental payments, content and much more.
The credit for evangelising digital payments as a brand surely belongs to PayTM. PayTM’s adoption by consumers drastically shot up volumes in Nov 2016 when India demonetised high value currencies. The growth and success in onboarding merchants built the scale of PayTM and it is now a household name that is associated with digital payments. #PayTMKaro
Coincidentally it’s IPO kicked off on the fifth anniversary of the Indian demonetisation event ! It is a wonderful success of India’s startup ecosystem. It showcases how the new-age India breaks hierarchy of old groups. The ability to continue to grow, and to make profits would be keenly watched; despite the fine-print in the DRHP about potential anticipated losses for next many quarters.
Competition
Paytm is the largest payments platform in India, with a gross merchant volume (GMV) of over Rs 4 lakh crore in FY21. It serves over 33 crore consumers and over 2.2 crore merchants.
In today’s digital payments sector, there are other big brands with bigger & deeper pockets. Be it WhatsApp pay, Jio Pay, Google Pay, PhonePe.
Many nagging questions will continue :
- What prompted the company to say few days before the IPO, that they might enter crypto business if it became legal ? (Incidentally, the crypto platforms are clocking faster valuations currently).
- Can the platform onboard cutting-edge talent to be a leader in disruptive tech solutions for the various BFSI sectors it is present in ?
- Can it bring in frugal-cost-innovation across tech, digital and even consumer engagement ? And hence save precious capital.
Paytm’s revenue has been growing but their market share has actually been shrinking with increased competition. With this IPO, they will have unequal race for garnering market share & revenues in this payments space as well as the financial services sectors they are in; they will compete with market leaders in non-payment space. And most of their digital-competitors being unlisted, will have access to larger pool of private capital and consequent access to participating in the loss-making-yet-engaged-consumer-acquisition process. After all, the listed entity has to update every quarter to its investors, analysts who track its existence and the overall markets.
ChallengesSome of the mid to long term challenges will need structural redressal as well as operational clarity of business philosophy to chase. Their business loss seems to have been reduced by reducing advertising expenses, and not from larger revenue growth. As a listed entity, these optics will be questioned by analysts, quarter after quarter.
At some time, the market investors will start comparing their sales-to-market cap multiple of 45X + to be very expensive compared to other larger financial services giants. Either the sales volumes have to shoot up or the market cap might stabilise to its different levels.
Critics have time and again asked on how the Indian policy makers would deal with such large Chinese ownership in this company. Or is it too little worry in the larger interests to promote Indian digital platforms ? What happens if there is a run on the Chinese investors, as we have seen with some of the Chinese investors facing their governmental pressures ?
Some of the PayTM financial businesses like insurance would need equity capital to grow its business. It would eat into any profitability and capital base in the short to middle term. It is also yet to prove its segmental leadership in other lines of financial services. As a listed entity, now it will be open to public scrutiny on how & how much the individual BFSI businesses are funded by the listed entity. Sheer licence-value of these BFSI segments won’t cut ice after few quarters. More importantly, it would be important for the regulators to have their framework ready for consumer grievance redressal by large digital platforms, as they onboard consumers who do one-click consent for upsell-products, without understanding the fine print.
The company also is yet to demonstrate a visible CXO bench strength. It has to work in reducing talent attrition as competition for talent heats up further in the market.
While it should take time to celebrate its listing success, it has harder-tasks ahead of itself. To behave as a mature platform, which can earn its own bread and butter; and actually build sustainable & scalable business with revenues and profits. The management style & personality traits that worked in building the business may need change for running a listed entity. As a listed entity, it would have to stand regular scrutiny - be it business information, of their public statements to public policy efforts, behaviour of key executives and the culture of the organisation.
After all, the IPO juggernaut demands sharing the profits with the shareholders in quarters and years to come with good governance. Initial investors who might have entered the scrip for potential short-term upside booking will leave at some point in time by booking gains. The firm needs to hold onto its retail investors’ interest, right from product delivery, business efficiency and more importantly returns to the shareholders.
Congrats Team-PayTM. It’s a journey well-begun. You have survived the harsh terrain of concept-to-consumers. It’s harsher time to bring performance-to-profits. Time to prove the concept of Pay it Forward, PayTM ! Else it would be seen as if the IPO success, was just due to the FOMO factor of its investors !!
