Paytm has $500 mn ready cash, IPO timed to expand lead in fintech: Sources

IPO will foster public and institutional investors' trust, and seal the company's position as India's largest fintech player

IPO-bound Paytm has $500 million worth of cash in the bank, and is looking to go public in order to expand its lead position in the fintech space in India, according to sources.

"Paytm’s IPO is well-timed as it will help the company boost its financial services, while it has already built a multi-stack payment ecosystem. The IPO will bring in public and institutional investors’ trust and ensure the company’s role in being India’s largest fintech player," said a person familiar with the company's IPO plans.

Paytm did not respond to a request for comment.

"One of the reasons which I can think of, for a company like Paytm  having that kind of capital to consider an IPO at this stage, is to get more liquidity. Paytm does not as such need to raise capital, or improve its credibility or market worth as a company. They're sitting on a pile of cash from recent investment rounds, and now they are going for an IPO to get more liquidity for existing shareholders. Hence as the company is doing well in such circumstances maybe  investors or the founders want to cash in on their investment. So while as shareholders they could have divided the profits, they could monetize the fame and market goodwill of the company, by going public the stocks of the company shall be listed on the exchange, the price shall move based on the general investor’s perception of the company’s performance which in the current circumstances it pretty good and hence shareholders and investors may want to monetize on that," said Salman Waris, Partner - Head TMT and IP Practice at Delhi-based TechLegis Advocates & Solicitors.

Its focus on not just one type of payments, unlike major competitors in the payments space, such as PhonePe and Google Pay, has served Paytm well in terms of expanding its payments universe. Over the past couple of years, it has been focused on increasing its reach in the merchant payments space.

This is evident in its FY20 numbers, with Paytm reporting revenue of Rs 3,540.77, PhonePe at Rs 427 crore and Google Pay at Rs 3.8 crore.

According to a pre-IPO report by Bernstein, Paytm's peer-to-merchant payment volumes have grown at a CAGR of 67 per cent over the last three years and now processes around $52 billion of P2M transactions. A RedSeer research also pegged Paytm as the leading player in the P2M transaction space with over a 50 per cent market share.

In the run up to its IPO, slated for November this year, the firm has been focused on cutting losses, narrowing them by 42 per cent in FY21 to Rs 1,701 crore, while taking a revenue fall of 14 per cent, according to the annual report of its parent company One97 Communications.

It is expected to file its Draft Red Herring Prospectus with the markets regulator Securities and Exchange Board of India next month.

In an internal email to employees on Monday, Paytm asked if they would like to sell their shares.

In the communication, Paytm explained it will be filing its Draft Red Herring Prospectus with the Securities and Exchange Board of India soon, and told shareholders, " You may, in your sole discretion, participate in the Offer by offering either all or a part of the Equity Shares held by you (which are eligible to be offered in the Offer) in the Offer for Sale. We wish to inform you that the Offer for Sale component has to be finalised before filing the DRHP with SEBI," the firm said.

The board of One97 Communications Ltd, which owns Paytm, has given an in-principle approval to the offering plan. A formal approval for this is expected once the prospectus is finalised. Morgan Stanley is steering the offering process on behalf of One97 Communications.

The firm’s annual general meeting is scheduled for June 30.

PAYTM'S POSITION

Leading player in the P2M transaction space with over a 50% market share, according to RedSeer 

Dominates offline merchant space with options like Paytm All-in-One QR code, Android Smart PoS, All-in-One PoS, Paytm Soundbox, EDC, IoT devices like SoundBox 

Has moved ahead of competition including Pinelabs, MSwipe, among others