‘Valuation lies in the eyes of money-holder,’ says Vijay Shekhar Sharma ahead of Paytm’s $2.4 bn IPO

India’s largest financial services company, Paytm, will debut on stock exchanges on November 8, looking to raise a whopping Rs 18,300 crore ($2.4 billion) from the markets at a $20 billion valuation, in what will be the largest public offering. The company was at $16 billion during the last fundraiser. Even as questions loom over the soaring valuation of the digital company, Vijay Shekhar Sharma, Paytm’s CEO and founder, says that his firm has sought to stick to the lower end of the valuation that Paytm commanded especially after the interest shown from global and homegrown investors during the roadshow.
 
“I would say, the valuation lies in the eyes of the money holder. It has been a humbling experience and We are, in fact, sticking to the lower end of the price band because we want maximum participation for this offering,” Sharma said during the press conference.  India’s most celebrated tech entrepreneur who has overseen his company’s transition from a mobile charging platform in 2010 to the largest financial services firm, said that the euphoria among investors for a market like India is a never-before opportunity for the country’s startups and other companies.
 
He describes the spree of investments in India’s tech ecosystem as unparalleled. “I have seen the dotcom boom, the e-commerce craze, but the traction this time is unprecedented,” Paytm CEO said.
 
“I had investors writing emails to me seeking participation in our IPO. And we still chose to stick to the bottom end of the price band. A truly fantastic experience,” Sharma spoke  in his inimitable style.

 
Paytm is offering its shares in the price range of Rs 2,080-2,150 in the multiples of 6 aggregating to Rs 18,300 crore. It is increasing its IPO issue size from the earlier Rs 16,600 crore as it received increased investor demand. The IPO will comprise fresh  issue of Rs 8,300 crore and an Offer for Sale (OFS) from existing shareholders amounting to Rs 10,000 crore. The subscription for anchor investors, which will comprise global and homegrown institutional funds, will open and close next week.
 
“We reached out to all our 27 investors for their participation in the IPO and they expressed their willingness,” Sharma said.
 
Profitability still not a near-term goal?
 
Despite profitability not looking like a near-term goal for this Rs 47,000-crore brand, Madhur Deora, Group President and Chief Financial Officer at Paytm said that the company has reported healthy financial numbers during the pandemic and that investments in technology, business expansion, and recruiting talent will continue. “It is not possible right now to determine when we will become profitable, but our June quarter and last financial year results show that the revenues across various segments have shown massive growth and we have turned contribution margin positive,” he added.
 
At the same time, the company has cut down on its marketing expenses by more than 60 per cent despite building a host of services including insurance, wealth tech, lending etc.
 
During India’s second COVID-19 wave, Paytm witnessed a 62 per cent jump in its revenues to Rs 891 crore in Q1 FY22 from Rs 551 crore in FY21. Its contribution margin improved by 196 per cent to Rs 245 crore.
 
Steady decline in losses
 
Paytm, over the past three financial years, has seen a continuous decline in the losses from Rs 4,212 crore in FY19 to Rs 2,468 crore in FY20 to Rs 1,655 crore in FY21. Paytm’s losses for the quarter ended June stood at Rs 381 crore.
 
The company said that its bet on the financial services space has taken off as the payments and financial services vertical contributes to almost 80 per cent of the company’s revenue. As per Paytm’s red herring prospectus, the company’s payments and financial services revenue alone stood at Rs 689 crore in Q1 FY22.
 
With a total user base of 330 million and 22 million merchants onboard on his platform, Sharma says that India’s financial services sector is at the cusp of revolution and the company aims to serve the underserved and unserved markets in the country.

Also read: Reinsurance company Swiss Re to buy 23% stake in Paytm Insuretech for about Rs 920 cr
Also read: Paytm gets SEBI nod for Rs 16,600-crore IPO