India’s Largest Ever IPO – One97 Communications (Paytm)

In India, if there is one name that is synonymous with digital commerce, payment systems and the only source of solace during the Note Ban, it is Paytm. Pay-Through-Mobile is how the name actually comes as Paytm. It is undoubtedly one of the most popular digital brands in India and no less than the independent evaluator Kontor Brandz valued Paytm brand at a whopping $6.3 billion.

The entire company is being valued in the IPO at around $18.6 billion so nearly a third of the value is captured by the brand value alone. Paytm offers payment services, commerce, cloud services and financial services entirely on a digital mode. It is almost synonymous as an alternate payment system via its hashtag “PayTMKaro”.

Here are some features that make the Paytm model special

  • It has high brand recall in metros and non-metros and virtually dominates the consumer and the merchant ecosystem
  • Paytm is the only payment company in India which literally owns every layer of the stack and it does not have any identified promoter group.
  • Paytm Bank has 6.5 crore accounts, GMV of Rs.4 trillion, Rs.5,800 crore in deposits and Rs.6,900 crore invested in wealth products and 740 crore transactions.
  • Cross selling across commerce, payments and wallets and intuitive selling the way Amazon does it, could be the next big growth areas for Paytm.

Structure of the One97 Communications (Paytm) IPO

  • The fresh issue portion will include the issue of 386.05 lakh shares worth Rs.8,300 crore at the peak price band of Rs.2,150 per share.
  • The OFS portion will entail issue of 465.12 lakh shares worth Rs.10,000 crore at the peak price band of Rs.2,150 per share.
  • The total IPO issue size of Rs.18,300 crore, combining the fresh issue and the OFS. This was enhanced from Rs.16,600 crore earlier.
  • Vijay Sekhar Sharma, the brain behind Paytm, will sell 18.73 lakh shares worth Rs.403 crore. Other major sellers would include marquee names like Antfin Netherlands, SAIF, SVF Panther and Alibaba.com. All will sell more than Sharma.

The IPO values the owner of the Paytm brand at Rs.139,300 crore, which translates into $18.6 billion. This is much lower than the original expectation of $20-25 billion that the company was targeting.

Let us not first and foremost lose sight of some formidable numbers. Paytm has over 33.3 crore registered consumers, 11.7 crore active users annually and 2.18 crore merchants on the platform. Nobody even comes close to that in India. In a nutshell, Paytm is an amalgam of consumer and merchant ecosystems with virtual dominance in both. That is an advantage hard to replicate and hence hard to beat.

  • The current IPO price values Paytm franchise at $18.6 billion. That is an appreciation of just about 20% over the last 1 year at a time when most digital plays have seen their valuations double in a year.
  • The expansion of ROI can have a multiplier effect on the revenues of Paytm in the coming years. When the customer base is so huge, even a marginal improvement in ROI can work wonders to the bottom line.
  • Here is why the IPO is likely to be value accretive for Paytm. Close to 75% of fresh issue proceeds will go for strengthening the Paytm ecosystem, inorganic growth via mergers and acquisitions, technology upgrades and outlays etc.
  • Unique online transacting users are expected to grow from 25 crore to 75 crore in India by 2026, i.e. more than half the Indian population. Paytm would be fabulously positioned to capitalize on this trend.

What is still hard to put a value on is the domination of the non-metros, the huge potential of the financial services business and the expansion of ROI. That surely makes an attractive IPO.

How excited would investors be about this cash burning IPO?
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Evaluate investing in the IPO based on your individual risk tolerance, investment Span etc.

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