One 97 Commu (PayTM) IPO review (May apply)

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Review By Dilip Davda on November 1, 2021

•    One 97 is known for its PayTM brand for the digital ecosystem. 
•    It enjoys the largest customer base as of June 30, 2021. 
•    Based on its financial parameters, its valuations are pretty high. 
•    The company is not likely to turn to make profits in the near term.
•    Cash surplus/risk seekers may consider an investment with a long term perspective.

PREFACE:
Ever since we have witnessed a mad rush for loss-making company IPOs and the height of it was marked for a mega IPO of Zomato, many start-ups, I-Tech companies, E-commerce companies, e-finance companies, hospitality companies have lined up their offerings. Considering rewards given by recent such offerings, we are witnessing seer madness for the primary market. Such fancy will continue as long as such euphoria remains in place, but once something goes wrong somewhere, we will have it. This company, which has a well-diversified platform under the e-commerce segment originally announced an IPO size of Rs. 16600 cr. but has now increased it to Rs. 18300 cr. (with higher OFS portion). Surprisingly the company is asking for a valuation of Rs. 139379 cr. with an average yearly turnover of Rs. 3500 cr. with negative earnings. 

ALERT: As per internal risk factors disclosed by the company, it clearly says that it may not be able to achieve profitability in the near term and as its operating expenses will keep rising resultantly it may increase its losses going forward. (Refer page 38/39 of the RHP).

ABOUT COMPANY:
One 97 Communications Ltd. (PayTM) is India's leading digital ecosystem for consumers and merchants as it has built the largest payments platform in India based on the number of consumers, number of merchants, number of transactions and revenue as of March 31, 2021, according to RedSeer. It offers payment services, commerce and cloud services, and financial services to 337 million registered consumers and over 21.8 million registered merchants, as of June 30, 2021. PayTM's two-sided (consumer and merchant) ecosystem enables commerce, and provides access to financial services through our financial institution partners, by leveraging technology to improve the lives of consumers and help merchants grow their businesses. In FY 2019, FY 2020 and FY 2021,

Our mission is to bring half a billion Indians into the mainstream economy. It launched Paytm in 2009, as a "mobile-first" digital payments platform to enable cashless payments for Indians, giving them the power to make payments from their mobile phones. Starting with bill payments and mobile top-ups as the first use cases, and Paytm Wallet as the first Paytm Payment Instrument, it has built the largest payments platform in India based on the number of consumers, number of merchants, number of transactions and revenue as of March 31, 2021, according to RedSeer. PayTM has also been able to leverage core payments platforms to build an ecosystem with innovative offerings in commerce and cloud, and financial services. Paytm is available across the country with "Paytm Karo" (i.e. "use Paytm") evolving into a verb for hundreds of millions of Indian consumers, shopkeepers, merchants and small businesses, according to RedSeer.

As per the Kantar Brandz India 2020 Report, the "Paytm" brand is India's most valuable payments brand, with a brand value of US$ 6.3 billion, and Paytm remains the easiest way to transact across multiple methods. The Paytm app is a payments-led super-app, through which it offers consumers innovative and intuitive digital products and services. The company offers its consumers a wide selection of payment options on the Paytm app, which include (i) Paytm Payment Instruments, which allow them to use digital wallets, sub-wallets, bank accounts, buy-now-pay-later and wealth management accounts and (ii) major third-party instruments, such as debit and credit cards and net banking. The app, enabled consumers to transact at in-store merchants, pay their bills, make mobile top-ups, transfer money digitally, create and manage their Paytm Payment Instruments, check linked account balances, service city challans and municipal payments, buy travel and entertainment tickets, play games online, access digital banking services, borrow money, buy insurance, make investments and more.

Its ecosystem served 337 million registered consumers and 21.8 million registered merchants as of June 30, 2021. The company's payments platform is at the core of an ecosystem. Making payments (bill payments, in-store or money transfer) is, in most cases, the first use case for a consumer on Paytm. Leveraging the large scale, reach, and deep and high-frequency engagement by consumers and merchants on the payments platforms, it has been able to add new payments offerings, as well as expand into commerce and cloud services and financial services. Each of its offerings increases the scope of the ecosystem for consumers and merchants, enhancing the value of the ecosystem.

The company offers products and services across "payment services", "commerce and cloud services" and "financial services". Its products and services are carefully developed to address large markets, and in areas where the consumers and merchants are underserved.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for growing and strengthening its PayTM ecosystems including acquisition and retention of customers (Rs. 4300 cr.), investment in new business initiatives/acquisitions/strategic partnership (Rs. 2000 cr.) and general corporate purpose, PayTM is coming out with a maiden mega IPO for Rs. 18300 cr. (approx. 85116282 shares at the upper cap) in the history of Indian stock market history. It is having a combo offer of fresh equity issue worth Rs. 8300 cr. (approx. 38604654 shares at the upper cap) and an Offer for Sale of Rs. 10000 cr. (approx. 46511628 shares at the upper cap). The company has fixed the price band of Rs. 2080 - Rs. 2150 for its book building route IPO. The issue opens for subscription on November 08, 2021, and will close on November 10, 2021. Minimum application is to be made for 6 shares and in multiples thereon, thereafter. Post allotment shares will be listed on BSE and NSE. The company has allocated the issue - 75% for QIBs, 15% for HNIs and 10% for the Retail investors. The issue constitutes 13.13% of the post issue paid-up capital of the company. 

Joint Book Running Lead Managers (BRLMs) to this issue are Morgan Stanley India Co. Pvt. Ltd., Goldman Sachs (India) Securities Pvt. Ltd., Axis Capital Ltd., ICICI Securities Ltd., J. P. Morgan India Pvt. Ltd., Citigroup Global Markets India Pvt. Ltd. and HDFC Bank Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company raised further equity in the price range of Rs. 4.78 to Rs. 1876.80 between February 2006 and September 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.50, Rs. Rs. 3.00, Rs. 9.00, Rs. 15.40, Rs. 77.70, Rs. 133.20, Rs. 305.60, Rs. 441.80, Rs. 532.20, Rs. 546.90, Rs. 583.40, Rs. 749.00, Rs. 800.00, Rs. 1279.70, Rs. 1707.70, Rs. 1820.20 and Rs. 1833.30 per share (based on FV of Re. 1). 

Post issue PayTM's current paid-up equity capital of Rs. 60.97 cr. will stand enhanced to Rs. 64.83 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 139378.84 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, on a consolidated basis, for the last three fiscals, PayTM has posted total revenue/net profit (Loss) of Rs. 3579.70 cr. / Rs. - (4225.60) cr. (FY19), 3540.70 cr. / Rs. - (2942.40) cr. (FY20) and Rs. 3186.80 cr. / Rs. - (1701.00) cr. (FT21). For the first three months of FY22 ended on June 309, 2021, it has posted a loss of Rs. - (381.90) cr. on total revenue of Rs. 948 cr. Thus while the top line has shown declining trends, it is still in the red. 

For the last three fiscals, on a consolidated basis, PayTM has posted an average negative EPS of Rs. - (43) and an average negative RoNW of - (36.90%). The issue is priced at a P/BV of 20.67 based on its NAV of Rs. 104 as of June 30, 2021. 

Issue price P/E base cannot be ascertained due to losses for all these periods reported in the offer documents. 

COMPARISON WITH LISTED PEERS:
As per offer documents, PayTM has no listed peers to compare with.  

DIVIDEND POLICY:
The company has not declared any dividend for the last three fiscals until the filing of this RHP. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
The seven BRLMs associated with this issue have handled 48 issues in the last three years, out of which 16 issues closed below their offer price on the listing date

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