IPO Size: Rs. 18,300 cr
- 55% is OFS – half by Ant Financial (28% to drop to 25%), Softbank, Alibaba, Elevation Capital, founder Vijay Shekhar Sharma and others.
- 45% is fresh issue for acquiring merchants and customers and new business
Price band: Rs. 2,080-2,150 per share
Mcap: Rs. 1,39,375 cr, implying 13% dilution
IPO Date: Mon 8th Nov to Wed 10th Nov 2021, Listing: 18th Nov 2021
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
India’s Largest Ever IPO
Ironically, none of India’s past top 5 IPOs have rewarded investors – Coal India, RPower, GIC Re, New India Assurance, DLF. Can One97 break the jinx?
We cannot help but go back 11 years to company’s previous attempt to list 11 years ago, in the mobile VAS avatar, when Rs. 120 cr IPO in Nov 2010 was called off.
Largest Payment Platform in India with 40% and 65% volume market share in mobile and wallet payments respectively, but Paytm ranks #3 behind PhonePe and Google Pay, based on value market share, which declined to 9% in Sep 2021 from 14% in July 2021.
High Burn: To clock revenue of Rs. 2,800 cr in FY21, company incurred expenses of Rs. 4,500 cr. Moreover, this is after interest income of ~ Rs. 300 cr on Rs. 3,000 cr surplus liquidity. Going forward, fresh issue proceeds will add to Rs. 600 cr incremental interest income which may deflate reported losses, but not necessarily operating losses. Such a scale of cash burn in the listed space appears scary.
Company Itself Certain of Losses in Future
RHP categorically states that losses will continue in future “We expect to continue to incur net losses for the foreseeable future and we may not achieve profitability in the future.” It is very unique to see such extreme risk being highlighted in the IPO document: “We cannot assure you that we will ever achieve profitability.”
Competitive and Regulatory Risk, as industry is fast-evolving. Company’s largest revenue segment ‘Payments’ got a phillip after demonetisation, but over the past couple of years, UPI has taken its sheen away. With Whatsapp expanding aggressively in payments through cashbacks, defending its market share will not be easy for Paytm.
FY22E revenue multiple of 36x is grossly stretched, as Q1FY22 revenue rose 66% YoY to Rs. 891 cr on a low base, while FY21 revenue contracted 15% YoY and FY20 grew merely 1.5%.
Paytm brand is valued at USD 6.3 bn or Rs. 47,000 cr, but this is just theoretical unless monetised separately, which is not the case here.
Just for comparison, even Zomato is trading at 28x FY22E, which itself is difficult to justify. Discounting super-high growth rates over multi-decades to justify present valuation is the riskiest way to investing.