 "Will it overtake SBI? Demonetisation may help Paytm turn around sooner than expected")
A report by Deloitte, part of company filings submitted by Paytm and reviewed by Business Standard, valued the company’s share price at Rs 3,525. This valuation report dated September 2, 2016 was prepared on a request from Paytm’s holding company One97 Communications Limited.
The Deloitte report arrived at the share value by using the discounted cash flow methodology. Under this methodology, the net profit after taxes of Paytm are shown to start rising phenomenally after 2018. The report estimated that in 2017, Paytm would post a loss of Rs 913 crore. The loss would fall to Rs 142 crore the very next year. This would happen primarily because of the doubling of Paytm’s revenue to almost Rs 3,150 crore.
The report went on to state that Paytm would post a profit of Rs 155 crore in 2019. In 2020, Paytm’s profits would more than double to Rs 395 crore. In 2021, the company’s profits would again almost double to Rs 750 crore.
Things as they stand as of now are radically different. The Prime Minister of India himself is hard selling cashless transactions in the country through his “Mann Ki Baat” programme on All India Radio.
Had this valuation been done after demonetisation, Paytm would be a goldmine for its investors. Paytm and Deloitte did not respond to Business Standard's emailed queries on the subject.
From the time its holding company was incorporated in 2000, it added 100 million customers over the next 15 years. In September 2015, Paytm got its first merchant customer. By September 2016, Paytm had 500,000 merchants on its network. In November this year, after the demonetisation announcement, Paytm’s merchant base touched 1 million. Paytm almost doubled its merchant base over the last month, many of whom came on board post demonetisation. If Paytm were to keep adding merchants at this rate -– neither faster nor slower -– it would add 12 million merchants in an year. The pace could be greater, given that the government is actively promoting cashless transactions.
More merchants also mean better business for Paytm. It charges 2.5 per cent of the transaction value from merchants. With more high value merchants being added to Paytm’s arsenal, the revenue earned by Paytm could be far more than what Deloitte had predicted in its report.
The other aspect is the number of transactions that have grown after the demonetisation announcement. Reports suggest that transactions have surged 250 per cent post the government’s announcement to scrap old 500- and 1,000-rupee notes. The same reports suggest that average transaction per customer has grown 6 times.
The third aspect regarding Paytm’s new found enthusiasm is the growth in the total number of customers. Paytm has said that it added 5 million new customers in two weeks post demonetisation. If it grew at the same rate, it would add 120 million customers a year. That’s more than it added in 15 years of its existence. With more merchants and more transactions per customer Paytm’s shareholders could be laughing all the way to the bank.
What is more intriguing is that the Deloitte report that valued Paytm’s shares was unclear on whether it had factored in Paytm’s foray in payments bank business. Mobile companies like Airtel have already launched a payments bank and others are expected to follow suit following the demonetisation move. The report uses the term ‘Payments Solutions’ while listing the business segments in which Paytm operates. Reports suggest that Paytm has relaunched its payments bank business post demonetisation. Paytm’s blog posts has media reports that quote its CEO suggesting that if Paytm were to grow at its post demonetisation rate, it could soon be bigger than State Bank of India (SBI), India’s largest bank.
All of this would mean a massive increase in revenue and profits for the company. Paytm’s balance sheets make for an interesting reading. Between 2007 and 2013, the company was tottering along with no signs of the excitement that is palpable these days although it was earning profits and in certain years making small losses. In 2012-13, it made a profit of Rs 31 crore. That fell to almost Rs 6 crore the next year. A further reading of its books shows that this was primarily on account of a fall in revenue from its digital goods business by almost Rs 40 crore.
Then in 2014-15, when the Modi government came to power, something unusual seems to have happened. Paytm posted a loss of almost Rs 373 crore for reasons not entirely clear. While Paytm was getting equity infusions, it was also spending heavily during this period on marketing and advertisement.
During the Indian Premier League (IPL) in 2014, Paytm launched one its most aggressive advertisement campaigns till date. It tied with Pepsi to offer free talk time to mobile recharge users. The campaign involved Bollywood actor Ranbir Kapoor indirectly promoting Paytm, even though he is the brand ambassador of Pepsi. Paytm advertisements flooded commercial breaks during the IPL 2014 season. By October that year, it tied up with ITC’s noodle brand offering more freebies to potential customers.
Its roped in the biggest names in the advertisement business like Oglivy & Mather and Madison to create and manage its campaigns.
In August 2015, it pushed its marketing strategies even harder. It bagged four year rights for sponsoring all tournaments to be played by the Indian cricket team for the next four years in a contract worth over Rs 200 crore. Paytm seemed to have laid solid ground for things to come in the future.
But smart marketing and was also backed with clever investment decisions. Especially interesting are the list of companies that invested in Paytm by picking up big and small stakes.
In 2005, when Paytm was still a fledgling enterprise it had only two shareholders. Its present CEO Vijay Shekhar Sharma and a man named Peeyush Agarwal. The company’s paid up capital was around 1.87 million shares. In 2006, a company called Cyberlogy India Private Ltd invested Rs 1.5 crore and the company’s capital limit was increased.
The first big overseas investment came in 2007 when SVB Financial Group, the California based owner of Silicon Valley Bank pumped money into Paytm. The company also received substantial investments from SAIF Mauritius Company Limited, a Port Louis based investment fund that employs a huge number of Indian graduates as analysts and investment advisors.
In the following years the company kept receiving capital including from an investment fund based in Hong Kong. In 2010, Sharma and Agarwal transferred some of their shares to other companies of the Mauritius based SAIF Company Limited.
But the highest profile Indian investor in Paytm till date didn’t appear until 2011. That’s when Anil Ambani owned Reliance Capital Limited, invested in the company. Reliance Capital was then headed by its current CEO Sam Ghosh. Infrastructure Finance Development Company (IDFC) also invested in Paytm the same year as Reliance Capital.
In 2015, another star investor in the form of Ratan Tata joined the bandwagon picking up a minor stake through his company RNT Associates Private Limited.
The biggest boost for Paytm, as has been widely reported in the media, came with investments from Chinese behemoth Alibaba. After the Jack Ma based ecommerce company picked up a 42% stake, its officials joined Paytm’s board of directors. Two of Alibaba’s executives Yijie Peng and Jing Xiangdong are now directors in the company. Some of Paytm’s board meetings are now held in China. For instance, its board meeting on July 29 this year was held at the picturesque sea side town of Hangzhou which is also the headquarters of Alibaba.
With Alibaba’s involvement, Paytm is also increasingly looking towards Africa. Paytm has set up subsidiaries in Benin, Uganda, Tanzania, Ivory Coast, Rwanda, Kenya and Nigeria. Very few Indian companies have such reach in some of the most troubled parts of Africa. Paytm also has a subsidiary in Bangaldesh and a company incorporated in the U.S.
While organisations like the Rashtriya Swamyasevak Sangh (RSS) and political parties like Mamata Banerjee led Trinamool Congress have flayed Paytm’s Chinese connection, it is evident from documents that Paytm has now become a multinational company operating across the world.
Paytm’s growth story has come with its fair share of troubles. According Paytm’s prospectus, there are criminal complaints against the company and its CEO Vijay Shekhar Sharma. Three cases involving financial fraud using Paytm’s payment gateway involving a sum of almost Rs 90 lakh are still pending in Madhya Pradesh. Two of these First Information Reports (FIRs) name Sharma and another Paytm director as the accused.
Undoubtedly, Paytm’s growth story has been phenomenal. After the government’s resolve to move to a cashless economy, Paytm has the potential to transform into a veritable goldmine for its shareholders. It has emerged as one of the biggest winners of Modi’s demonetisation move. Call it strategic foresight, astute business planning or plain good luck.
This story was first published on December 3, 2016
The Deloitte report arrived at the share value by using the discounted cash flow methodology. Under this methodology, the net profit after taxes of Paytm are shown to start rising phenomenally after 2018. The report estimated that in 2017, Paytm would post a loss of Rs 913 crore. The loss would fall to Rs 142 crore the very next year. This would happen primarily because of the doubling of Paytm’s revenue to almost Rs 3,150 crore.
The report went on to state that Paytm would post a profit of Rs 155 crore in 2019. In 2020, Paytm’s profits would more than double to Rs 395 crore. In 2021, the company’s profits would again almost double to Rs 750 crore.
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But Deloitte prepared this report when it had no idea that the Modi government was contemplating its demonetisation move. It is clear from the report that Paytm’s future looked good even without demonetisation.
Things as they stand as of now are radically different. The Prime Minister of India himself is hard selling cashless transactions in the country through his “Mann Ki Baat” programme on All India Radio.
Had this valuation been done after demonetisation, Paytm would be a goldmine for its investors. Paytm and Deloitte did not respond to Business Standard's emailed queries on the subject.
From the time its holding company was incorporated in 2000, it added 100 million customers over the next 15 years. In September 2015, Paytm got its first merchant customer. By September 2016, Paytm had 500,000 merchants on its network. In November this year, after the demonetisation announcement, Paytm’s merchant base touched 1 million. Paytm almost doubled its merchant base over the last month, many of whom came on board post demonetisation. If Paytm were to keep adding merchants at this rate -– neither faster nor slower -– it would add 12 million merchants in an year. The pace could be greater, given that the government is actively promoting cashless transactions.
More merchants also mean better business for Paytm. It charges 2.5 per cent of the transaction value from merchants. With more high value merchants being added to Paytm’s arsenal, the revenue earned by Paytm could be far more than what Deloitte had predicted in its report.
The other aspect is the number of transactions that have grown after the demonetisation announcement. Reports suggest that transactions have surged 250 per cent post the government’s announcement to scrap old 500- and 1,000-rupee notes. The same reports suggest that average transaction per customer has grown 6 times.
The third aspect regarding Paytm’s new found enthusiasm is the growth in the total number of customers. Paytm has said that it added 5 million new customers in two weeks post demonetisation. If it grew at the same rate, it would add 120 million customers a year. That’s more than it added in 15 years of its existence. With more merchants and more transactions per customer Paytm’s shareholders could be laughing all the way to the bank.
What is more intriguing is that the Deloitte report that valued Paytm’s shares was unclear on whether it had factored in Paytm’s foray in payments bank business. Mobile companies like Airtel have already launched a payments bank and others are expected to follow suit following the demonetisation move. The report uses the term ‘Payments Solutions’ while listing the business segments in which Paytm operates. Reports suggest that Paytm has relaunched its payments bank business post demonetisation. Paytm’s blog posts has media reports that quote its CEO suggesting that if Paytm were to grow at its post demonetisation rate, it could soon be bigger than State Bank of India (SBI), India’s largest bank.
All of this would mean a massive increase in revenue and profits for the company. Paytm’s balance sheets make for an interesting reading. Between 2007 and 2013, the company was tottering along with no signs of the excitement that is palpable these days although it was earning profits and in certain years making small losses. In 2012-13, it made a profit of Rs 31 crore. That fell to almost Rs 6 crore the next year. A further reading of its books shows that this was primarily on account of a fall in revenue from its digital goods business by almost Rs 40 crore.
Then in 2014-15, when the Modi government came to power, something unusual seems to have happened. Paytm posted a loss of almost Rs 373 crore for reasons not entirely clear. While Paytm was getting equity infusions, it was also spending heavily during this period on marketing and advertisement.
During the Indian Premier League (IPL) in 2014, Paytm launched one its most aggressive advertisement campaigns till date. It tied with Pepsi to offer free talk time to mobile recharge users. The campaign involved Bollywood actor Ranbir Kapoor indirectly promoting Paytm, even though he is the brand ambassador of Pepsi. Paytm advertisements flooded commercial breaks during the IPL 2014 season. By October that year, it tied up with ITC’s noodle brand offering more freebies to potential customers.
Its roped in the biggest names in the advertisement business like Oglivy & Mather and Madison to create and manage its campaigns.
In August 2015, it pushed its marketing strategies even harder. It bagged four year rights for sponsoring all tournaments to be played by the Indian cricket team for the next four years in a contract worth over Rs 200 crore. Paytm seemed to have laid solid ground for things to come in the future.
But smart marketing and was also backed with clever investment decisions. Especially interesting are the list of companies that invested in Paytm by picking up big and small stakes.
In 2005, when Paytm was still a fledgling enterprise it had only two shareholders. Its present CEO Vijay Shekhar Sharma and a man named Peeyush Agarwal. The company’s paid up capital was around 1.87 million shares. In 2006, a company called Cyberlogy India Private Ltd invested Rs 1.5 crore and the company’s capital limit was increased.
The first big overseas investment came in 2007 when SVB Financial Group, the California based owner of Silicon Valley Bank pumped money into Paytm. The company also received substantial investments from SAIF Mauritius Company Limited, a Port Louis based investment fund that employs a huge number of Indian graduates as analysts and investment advisors.
In the following years the company kept receiving capital including from an investment fund based in Hong Kong. In 2010, Sharma and Agarwal transferred some of their shares to other companies of the Mauritius based SAIF Company Limited.
But the highest profile Indian investor in Paytm till date didn’t appear until 2011. That’s when Anil Ambani owned Reliance Capital Limited, invested in the company. Reliance Capital was then headed by its current CEO Sam Ghosh. Infrastructure Finance Development Company (IDFC) also invested in Paytm the same year as Reliance Capital.
In 2015, another star investor in the form of Ratan Tata joined the bandwagon picking up a minor stake through his company RNT Associates Private Limited.
The biggest boost for Paytm, as has been widely reported in the media, came with investments from Chinese behemoth Alibaba. After the Jack Ma based ecommerce company picked up a 42% stake, its officials joined Paytm’s board of directors. Two of Alibaba’s executives Yijie Peng and Jing Xiangdong are now directors in the company. Some of Paytm’s board meetings are now held in China. For instance, its board meeting on July 29 this year was held at the picturesque sea side town of Hangzhou which is also the headquarters of Alibaba.
With Alibaba’s involvement, Paytm is also increasingly looking towards Africa. Paytm has set up subsidiaries in Benin, Uganda, Tanzania, Ivory Coast, Rwanda, Kenya and Nigeria. Very few Indian companies have such reach in some of the most troubled parts of Africa. Paytm also has a subsidiary in Bangaldesh and a company incorporated in the U.S.
While organisations like the Rashtriya Swamyasevak Sangh (RSS) and political parties like Mamata Banerjee led Trinamool Congress have flayed Paytm’s Chinese connection, it is evident from documents that Paytm has now become a multinational company operating across the world.
Paytm’s growth story has come with its fair share of troubles. According Paytm’s prospectus, there are criminal complaints against the company and its CEO Vijay Shekhar Sharma. Three cases involving financial fraud using Paytm’s payment gateway involving a sum of almost Rs 90 lakh are still pending in Madhya Pradesh. Two of these First Information Reports (FIRs) name Sharma and another Paytm director as the accused.
Undoubtedly, Paytm’s growth story has been phenomenal. After the government’s resolve to move to a cashless economy, Paytm has the potential to transform into a veritable goldmine for its shareholders. It has emerged as one of the biggest winners of Modi’s demonetisation move. Call it strategic foresight, astute business planning or plain good luck.
This story was first published on December 3, 2016