Bengaluru | Mumbai: Paytm’s board on Friday approved a resolution for its proposed initial public offering (IPO) before November, multiple sources aware of the matter said. The company is aiming to file a draft red herring prospectus (DRHP) with the markets regulator, the Securities and Exchange Board of India (Sebi), by July, the sources said.
The Noida-based company is also evaluating a secondary share sale that could cut stakes of existing investors before the IPO, they said.
The details are not final but could possibly include its largest investors like China’s Alibaba Group, Japan’s SoftBank and venture capital firm Elevation Capital, formerly known as SAIF Partners. According to a source, the transaction could be pro rata, where all major investors could forgo a part of their stakes proportionally.
Paytm, according to a report by news wire Bloomberg, is
aiming at a valuation of $25-$30 billion.
Sources said a leading banker has valued Paytm at around $20 billion, higher than its current valuation of $16 billion.
“The company is aiming for a ‘significantly’ higher valuation than its current valuation,” one of the people said.
Along with Morgan Stanley and JP Morgan, Paytm is planning to bring on board Axis Capital, ICICI Securities and SBI Capital to accelerate its compliance timelines.
A spokesperson for Paytm declined to comment.
“They (Paytm) want to put 10% of shares on the block, which would be around $3 billion – ballpark, not exactly but in this region,” one person directly aware of the plan said.
Paytm has so far raised $2.8 billion.
“So, the company will evaluate if it has to make a secondary transaction and will offer it on a pro-rata basis to each of its investors. It is working out the contours, but in the last five years, none of its ‘significant’ shareholders have expressed intent to exit,” the person added.
Core business growth
Paytm’s core payments business is growing, and it is also expanding in financial services. Verticals like online ticketing for travel and movies have, however, taken a hit due to the pandemic.
The payments company is expected to make losses for an eighth consecutive fiscal year in FY21, though the losses are expected to narrow from the previous financial year. Revenue is also likely to take a hit.
Audited numbers for the financial year 2021 have not yet been made public.
In FY20, Paytm’s consolidated revenue was flat at Rs 3,280 crore, while it cut losses by 30% to Rs 2,942 crore, according to its annual report.
“Offline merchant payments are still hit because of the ongoing second wave of the pandemic. This was one of the areas they were focusing more on in the past year as it offers more options to monetise than peer-to-peer payments,” another person aware of the company’s operations said.
Revenue growth is critical to its reception in the public markets, multiple industry executives said.
Going forward, various regulatory approvals will be key to how its businesses fare.
Rs 568 crore acquisition of general insurer Raheja QBE in 2020 has yet to receive approval from the insurance regulator.
Separately, the fintech player wants to convert its payments bank into a small finance bank to lend directly to customers but is waiting for the recommendations of a working group of the Reserve Bank of India to be approved by the banking regulator before it proceeds.
So, it is a moot point whether its valuations would double in the public float, the sources said.
Paytm has ambitious plans to build its lending business and has
brought on board new executives, including Amit Nayyar as president and Bhavesh Gupta as chief executive for Paytm Lending.
Former investment banker Madhur Deora is also a president at the company.
Deora joined the firm as chief financial officer in 2016 after leaving Citi’s investment banking unit as managing director.
Besides Paytm founder Vijay Shekhar Sharma, Deora is one of the top executives directly involved in the proposed IPO plan.
Paytm also has an ecommerce business under Paytm Mall, which initially tried taking on sector biggies like Amazon India and Walmart-owned Flipkart, but has remained a distant third player.
Paytm had set up a joint venture with Alibaba Group firm AG Tech in 2018 to build a gaming platform, which began life as Gamepind but was later renamed Paytm First Games.
This entity competes with platforms like Dream11 and Mobile Premier League (MPL), which is backed by Sequoia Capital and Times Internet, the internet arm of the Times of India group, which also publishes this newspaper.
Paytm’s potential IPO comes at a time when multiple startups have firmed up similar plans.
Food delivery platform Zomato is expected to be the first to go public after it filed its DRHP with Sebi late last month. It is aiming to raise $1.1 billion.