Should you invest in the Paytm IPO?

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31 Jul, 2021

9 min read

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The Paytm IPO has been making headlines for over a month now, so you have undoubtedly heard about it too.

You're clearly here because you're looking to figure out whether or not the Paytm IPO is a good investment proposition for you or not. Quite frankly, you are the only person who can correctly answer whether or not a given investment suits your risk appetite, your investment horizon and your overall investment goals. What we can offer you here, however, is all the information you will need, in order to make an informed decision.

The Paytm IPO, intended to be for about USD 3 billion, is going to have Rs 1.6 billion fresh issue of shares, while the rest will be an offer for sale by its current investors and promoters.

Here are some of the key points for you to mull over as you decide whether the Paytm IPO suits your investor persona:

Paytm's financial track record

This is typically the first thing you need to look at when considering any IPO. The company's Red Herring Prospectus will come with all the recent financial data of any company looking to go for an IPO. Here are the highlights: 

  • Paytm's revenue has slid over Rs 1000 crores in comparison to last year. In FY 2020 revenue from ops closed at Rs 3820 crores, whereas in FY 2021, revenue from ops closed at Rs 2802 crores. 
  • However the difference in total revenue earned is less drastic. Total revenue in FY 2020 stood at Rs 3540 crores versus Rs 3186 crores in FY 2021. 
  • However Paytm's total spends have also reduced. The Wallet spent Rs 6138 crore in FY 2020 and a substantially lower Rs 4728 crore in FY 2021. 
  • Paytm's losses have also reduced by more than Rs 1200 crore - in FY 2020, losses stood at Rs 2942 crore which had reduced to Rs 1701 crore.

Of course, one might want to attribute lowered numbers amid pandemic times to overall drop in business.

The landscape around Paytm's business

When considering investing in a company, even when things look bright and sunny as far as historical financial data goes, it is important to zoom out and look at the company's sector of operation as a whole.

Here are some of the highlights with regards to  Paytm and its E-wallet niche - digital payment wallets might not be numerous enough, yet, to be collectively referred to as a sector but there are still enough players so as to rank them. Paytm ranks third among e-wallet players. Google Pay and PhonePE take the first 2 spots. It holds 12% market share.

As far as demand goes, logically, one would expect it to be on the rise, for two good reasons: 

  1. The world in general is moving to digital everything. Paytm has been witnessing a rapidly growing user base for the past couple of years.
    In FY 2018, users stood at 200 million, which grew to 260 million in FY 2019, to 300 million in 2020 and to 350 million in FY 2021.
    The number of businesses - or merchants - accepting PayTm payments also underscores rapidly increasing adoption of e-wallet payments: In FY 2018, merchants stood at 7 million. This grew to 12 million in FY 2019, to 16 million in 2020 and to 20 million in FY 2021.
    As you may have observed, growth in user base and merchant base has seen a rather sustained growth.
  2. The ongoing pandemic, and social distancing norms that have come with it, have generally resulted in increased use of digital payment options. FinTech in general, is experiencing what one might call a boom.

Reason for hosting the IPO, company goals and future moves

Despite all the noise, Paytm is yet to file it's Red Herring Prospectus and therefore there is no concrete word on what the IPO Proceeds will be used for. Investors should definitely wait to observe this prior to making a decision either way.

  • Paytm reportedly wants to increase its valuation from USD 16 billion to USD 25 billion to USD 30 billion.
  • The company also wants to start a small finance bank and begin lending operations.
  • Paytm has applied for an IRDAI license, clearly in an attempt to expand and diversify
  • Paytm Money is the company's investment vehicle and this might also invite more focus in the months to come.

Reason for all the noise

This is actually a very important point to note. There's a lot of noise around the Paytm IPO and as a result, it might seem like a given that investing in it is a good thing. However do note that the Paytm IPO is making headlines (that you notice) because it has grown to be a household name. News websites want you to click on their article! And of course you - and many other investors - did so!

The second reason why all the newspapers cannot stop talking about the Paytm IPO is that it is the biggest IPO in Indian stock market history. The IPO is expected to be for about USD 3 billion - or about Rs 21,000 to Rs 22,000 crore. The largest IPO so far happened over a decade ago and it's amount was Rs 15,000 crore.

We have given you lots of information for you to decide if this IPO is for you. Do also wait to study the company's Red Herring Prospectus before you make a decision on whether to participate in this upcoming IPO. Consider the Paytm share price being offered during the IPO and compare it with the company's actual earnings. Study similar IPOs - arrive at an investment horizon and possible target exit price. Do these suit you? Invest accordingly.

If this blog was helpful, read our other blogs on why companies go public. We also have posts on various other popular and exciting IPOs. Be sure to keep brushing up your stock market understanding.

FAQs:

What are the dates for the Paytm IPO? 

The exact dates of the  IPO are yet to be announced, but investors can look forward to it happening before the end of 2021. The company is expected to file it's Red Herring Prospectus later this month.

What is the offer price of Paytm shares? 

Paytm share offer price is yet to be declared.

What is the retail investor proportion for the Paytm IPO? 

The retail investor proportion as well as QIB and institutional investor proportions are yet to be announced.

What is the amount of the Paytm IPO? 

The Paytm IPO is reportedly going go be for an amount of 3 billion dollars

Is Paytm IPO a profitable investment? 

There is no way to guarantee whether a stock market investment will be profitable, but go through our helpful criteria above to be able to make an informed judgement when the time comes.

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