Strategy Note /

Paytm IPO fully subscribed on India’s massive tech disruption opportunity

  • The largest IPO in India’s history wrapped up today. Foreign investors showed strong appetite for this industry leader

  • Paytm will remain heavily loss-making as it continues to invest in broadening its customer and product footprint

  • The aggressive valuation reflects Paytm’s super app leadership and capacity to disrupt whole swathes of India’s economy

Paytm IPO fully subscribed on India’s massive tech disruption opportunity
Rahul Shah
Rahul Shah

Head of Financials Equity Research

Rabail Adwani
Rohit Kumar
Tellimer Research
10 November 2021
Published byTellimer Research

One 97 Communications Limited, owner of India’s Paytm payments platform and super app, has closed its US$2.5bn IPO, making it the biggest such transaction in India. The price range has been set at INR2,080 to INR2,150 per share – valuing the whole company at close to US$20bn – with the fully-subscribed transaction closing today. This note looks at key top-down growth drivers, examines the company’s business model and financial performance, and considers valuation benchmarks and investment risks. In subsequent reports, we will delve more deeply into key areas of the business: Payments, Lending, Insurance, Investech and Commerce.

India is one of the world's biggest financial inclusion opportunities

Transaction details

One97 Communications, Paytm's parent, is offering 48.3mn shares worth INR183bn (US$2.5bn), with a primary tranche of INR83bn and a secondary tranche of INR100bn. The transaction is the largest public offering in India, beating Coal India's INR150bn sale in 2010. The price range has been set at INR2,085-2,150 per share, valuing the whole company at close to US$20bn.

The offer has been fully covered, with a 1.9x subscription level. Foreign institutional investors were most keen, with a 2.8x subscription level, followed by retail investors (1.7x). In contrast, non-institutional investors bid just 0.2x their allocation.

According to press reports, anchor investors have committed INR82bn at an INR2,150 share price. There is a broad cross-section of investors, as highlighted below. This is in addition to existing high-profile investors such as Ant Group, Berkshire Hathaway and Softbank.

Paytm's anchor investor tranche was 10x subscribed

Around half of the proceeds will be used to grow the Paytm ecosystem, via customer and merchant acquisition and retention programmes. Around a quarter of the proceeds will be used to fund new business initiatives, such as acquisitions and strategic partnerships.

Paytm: planned use of IPO proceeds

Industry overview

Paytm offers payments, commerce and cloud services to 333mn consumers and over 21mn merchants (as of March 2021). The company is listing its shares on the Bombay Stock Exchange, with proceeds aimed at growing the base of consumers and merchants and investing in new business initiatives such as acquisitions and partnerships.

With China's tech sector facing significant regulatory uncertainty, India now probably represents the largest accessible emerging markets opportunity for global investors. The number of Indians accessing the internet or owning a smartphone is likely to increase by 300mn over the next five years, while the number of active internet users could double to 900mn individuals over the same timeframe.

India’s digital landscape

Source: Company prospectus

The payments landscape in India looks set to register much stronger growth, given its lower starting base. Smaller-sized transactions, and those carried out via mobile phone, are likely to experience the fastest rate of advance.

India's digital payments opportunity

Segments that are likely to see the strongest growth include online retail, grocery, food delivery and gaming.

India's digital payments opportunity, by segment

As the industry leader in digital payments, Paytm seems well-positioned to capture this growth opportunity. The experience in other markets suggests the industry will ultimately congregate around a few leading service providers, which suggests Paytm could see its market share advance further, particularly as the firm has a strong position across the payments value chain.

Paytm's positioning in India's digital financial services sector

Company profile

Paytm has 333mn individual users (with 14mn annual transacting users), has signed up 21mn merchants to its network via 800k devices. In FY 2021, the firm oversaw INR4.0tn GMV via 7.4bn transactions, generating INR2.8bn revenue. It has set up 64mn payment bank accounts for its customers and hold INR52bn deposits and has INR52bn assets under management. Last year, the firm disbursed 2.6mn loans.

Paytm operating KPIs

*See the appendix for the full notes. Source: Company prospectus

Paytm generates revenues in three principal areas: Payments Services, Financial Services, and Commerce and Cloud Services.

Paytm value chain and revenue model

Source: Company prospectus

In payments, the firm offers a wide range of services, including full integration with third-party providers such as banks.

Paytm payments product suite

Source: Company prospectus

Payments also provides an interface towards a much broader suite of Financial Services and Commerce offerings.

Paytm product suite

Source: Company prospectus

Paytm’s Commerce Services allow users to service a large proportion of their day-to-day needs, as well as facilitating more discretionary expenditure.

Paytm Commerce and Cloud Services

Source: Company prospectus

Financial performance

Paytm has experienced strong transactional growth in recent quarters. Gross Merchandise Value has doubled between March-June 2020 and March-June 2021, with the pandemic leading to wholesale shifts in consumer behaviour.

Paytm GMV trend

In terms of monetising these transactions, Paytm's take rate has declined from 0.74% to 0.52% from 2019 to 2021. Its take rate is also below global peers'. This may partly reflect the nature of the Indian digital payments market, which operates on the centralised Unified Payments Interface (UPI) backbone, making it easy for consumers, merchants and service providers to interconnect.

Global take rate comparison

Paytm's revenues actually declined in 2021. But beneath the surface, there are significant changes in mix taking place: commerce and cloud services revenues are declining (at 33% CAGR) while payments and financial services revenues have been growing at 12% pa.

Paytm revenue mix

Changes to consumer behaviour, increased trust and visibility of the Paytm brand and scale effects have helped to substantially lower the firm's marketing and promotional expenditure. In turn, this has contributed to a recovery in profitability.

Paytm's financial KPIs


Paytm is listing its shares on the Bombay Stock Exchange. Based on the published price range of INR2,080-2,150 per share, the firm is targeting a market value of close to US$20bn. As highlighted above, the company is still firmly loss-making, which limits the types of valuation metrics that can be used when comparing Paytm's historical performance with listed peers; for example, looking at the firm's customer base, the value of transactions overseen or its revenues. Looking forward a few years can help bring other metrics into play (such as EBITDA or net profit), but this adds a thick layer of subjectivity to the analysis.

Our selection of highly-rated emerging market payments peers shows that they are valued at a median of 13.5x this year's revenues. Applying this to Paytm's INR31.9bn top line in FY 21 would deliver a cUS$6bn valuation. Very few listed peers, such as Uruguay's dLocal, are on higher top line multiples than Paytm at the IPO price.

To buy into the IPO investors, therefore, need to:

  • consider the massive market opportunity in India

  • expect Paytm's market position to further strengthen in its current fields of operation

  • expect Paytm to succeed in new areas of activity

  • expect Paytm's finances to drastically improve

Effective use of the data generated by its large customer base will be key to succeeding in all these areas.

Current US tech giants such as Amazon and Google, or Ant Group/ Alipay in China, demonstrate that such an outcome is possible. And the strong interest from foreign institutional investors shows that they are willing to take this leap of faith. But these US tech giants (and their Chinese brethren) also demonstrate that commercial success attracts regulatory attention. History shows that intervention in the name of protecting the masses is a card that Indian politicians are only too willing to play.

Risk factors

Inability to attract and retain merchants to the platform. Paytm's revenues are primarily driven by fees earned from merchants for payments services. Any drop off in the number of merchants or their transactional activity could harm Paytm's operations.

Inability to attract and retain consumers on the platform. Paytm generates revenues whenever a consumer makes a transaction on the platform.

Impairment of the network effect could harm the business. By offering a wide range of products and services to a large base of consumers and merchants, Paytm can benefit from significant network effects. Poor user experience, or regulatory restrictions, could limit Paytm's ability to fully benefit from these network effects.

Paytm's revenues are currently highly dependent on the payments business, which generated 75% of the top line in the last full financial year. Management's efforts to diversify the business may not succeed, while third-party providers, such as financial services firms, could in future charge more for their processing services.

Reliance on partners for the provision of financial services. Financial institution partners include commercial banks, mutual fund managers, insurance companies etc. Partners may decide to move away from the platform, which could hurt Paytm's business.

Highly competitive and rapidly evolving industry. There is continuous change in technology, consumer needs, industry standards, and products and services. In addition, competition is rising with new entrants (both domestic and international), which could impact Paytm's market share.

History of losses and negative cashflows. Significant losses and negative cashflows could impact the company's plans to grow aggressively if it fails to arrange the cashflow required.

Regulatory changes could prove damaging to Paytm's business model. Regulations are evolving rapidly and could have profound implications on Paytm's business model, as we have seen in the case of Chinese fintechs.

An economic slowdown could impact the business. Consumer lending is closely linked to the economic situation; any adverse developments could prompt financial partners to reduce credit exposure. In addition, e-commerce and other products are also geared to the economic environment.

Privacy or data security breaches could result in direct financial losses and cause significant damage to the Paytm brand.


*Full notes for "Paytm operating KPIs" exhibit:

  1. For FY 2021.

  2. As of March 31, 2021.

  3. For FY 2020. Commerce GMV for the year FY 2021 was INR42bn.

  4. Includes transactions made to merchants on Paytm's ecosystem and consumer-to-consumer payments such as money transfers.

  5. Includes POS and Soundbox.

  6. Includes Paytm Payments Bank’s savings and current accounts.

  7. Includes Paytm Payments Bank’s savings and current account balance, fixed deposit (through financial institution partners) and wallet balance.

  8. Includes personal loans, merchant lending and postpaid offered through Paytm Payments Bank’s financial institution partners.

  9. Includes mutual fund, stockbroking and gold AUM.

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