Paytm has recently been in the news for many reasons, the latest being its IPO announcement. The founder, Vijay Shekhar Sharma, has filed the draft red herring prospectus for the biggest IPO of Rs 16,600 crores after 2010 by Coal India (the US $3.3 billion). The issue will be a combination of fresh equity shares worth Rs 8,300 crores and OFS (offer for sale) of another Rs 8,300 crores. The IPO funding will take the company's valuation to around $25 billion from its current value of $16 billion. The fintech firm is likely to go to the markets in Diwali and has eyed some major expansion plans.
Owned by One97 Communications Limited, Paytm was founded in 2010 in Noida, UP, with a capital of US $2 million. The catchy tagline, Paytm Karo, with its revolutionary mobile wallet payment system and additional retail features, has taken over the Indian market very strategically. However, the most prominent investors of the firm comprise of Chinese giant Ant Group (30.33%), Softbank (18.73%), and others like Elevation Capital, Alibaba, and the founder Sharma.
The Necessity and Challenges
Paytm has categorically positioned itself as a conventional payment app, and it generates its revenue through it. With its losses reduced from Rs 2943 crores in FY 2020 to Rs 1704 crores in FY 2021, the company has long-term plans to take over the market.
The reason for IPO is that it will enable the fintech to invest in technology and reach more customers. Paytm also plans to implement new strategies, add services and personnel to broaden their financial presence. There are many companies opting for the IPO in 2021 including women-led unicorn Nykaa and QSR chain Devyani International.
Paytm has also been subjected to several controversies that pose significant challenges to its standing. From irrational advertising, infringement case filed by Paypal to employees' fraud, Paytm has to clear off its reputation to gain better investors in the future. Additionally, the company also has to deal with the regulatory warnings by SEBI, RBI, and others over discrepancies in uploading its client's KYC data and its foreign holding regulations. But the company is waiting for its approval from the RBI over its stake in insurance intermediaries.
ESOP and Pre-IPO
To build a trustworthy business ecosystem, Paytm is turning every possibility into an opportunity. Being the largest giver of Employee stock options (ESOP) to its employees (approximately Rs 6.1 crores), it also gives them the backing to convert them into shares before the IPO. Its investor Softbank will ensure liquidity via lenders to help employees make exercise and tax payments on conversion. The fintech major has also taken the responsibility to bear the interests of the loan incurred for six whole months.
A pre-booking service to help investors avoid the hassle on the IPO day is a breakthrough initiative taken by Paytm. It will raise around Rs 2000 crores in this round. However, qualified investors won't be allowed to sell their shares for a year. The new issue of shares in the IPO will set off the amount already raised.
Paytm has clearly mentioned that the ownership will be vested in the hands of the foreign authority even after the IPO. The plans to expand or diversify will be according to the FDI policies laid down by the government. Interestingly, Paytm's founder Vijay Sharma has listed his brother Ajay Shekhar Sharma as the relative who will have voting rights in the company.
The owner is aware of the losses the firm is incurring and in no rush to change the scenario in the short term either. He assures that the development process will be smooth, and the brand will dig into the market over time. Right now, the main focus is working through the waves to hire personnel, perform and get more visibility.
The start-up's high profile investors, like Ant Group, Alibaba among others, are planning to offload some of their holdings to reduce their stake before the IPO. The idea is to decrease the influence of the major investor Ant Group to 25% to comply with the SEBI norms for an IPO listing. Ratan Tata, Warren Buffet, and Vijay Shekhar Sharma will drop a few of their shares too.
Survival of the Fittest
In times when start-ups are gaining popularity for their excellent strategies, global reach, and fantastic research on technology advancements, Paytm is also exploring its market tactfully. While every start-up will have its unique approach to address its issues and influence the target customers, it is exemplary for Paytm to pave its path, calculating its ups and downs. With new plans to accommodate financial services, retail payments system, and other upgrades, we are very hopeful of Paytm's emergence as the leader of fintech firms.
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