Paytm IPO: 8 key points about India’s largest stock market debut

In 2010, a website that allowed users to top up prepaid mobile numbers was launched in India. Called Pay-TM, it offered users the convenience of completing an everyday transaction online instead of physically visiting a store.

Little did anyone know that years later, the website – whose name is short for “pay through mobile” and also a play on the acronym ATM – would become so ubiquitous and serve as a cornerstone of India’s digital journey.

Today, Paytm is not just limited to mobile phone top-ups. It has evolved into a fintech super app that provides peer-to-peer payment, insurance, personal loans, and ecommerce, among other services. And now, the company is headed for an initial public offering from which it is expected to raise US$2.4 billion at a valuation of nearly US$20 billion. Paytm’s IPO could very well be India’s largest listing to date.

The Ant Group-backed firm’s road to IPO also marks the coming of age of tech startups in India looking to go public. Zomato’s blockbuster US$1.3 billion trade debut in July set the momentum, and this was followed by automobile marketplace CarTrade’s US$403 million listing in August. Other companies like PolicyBazaar, Nykaa, Ixigo, and MobiKwik are also on track to go public.

Tech in Asia looked into Paytm’s draft red herring prospectus (DRHP) filed with the Securities and Exchange Board of India (SEBI), and here’s what caught our eye.

1. Revenue moving downwards

Paytm’s net revenue fell nearly 10% in the financial year ended (FYE) March 2021. The company seems to be on a downward trajectory as it recorded a roughly 1% decrease a year earlier. As for operating revenue, it recorded about a 14% drop in FYE 2021.

Unsurprisingly, Paytm attributes the overall revenue dip during the previous financial years to the Covid-19 pandemic. The decline, however, began even before the global health crisis affected the company’s business.

The decreased earnings in FYE 2020 was buffered by Paytm’s growing payment and financial services business as well as a one-time gain of US$34 million via the recovery of a marketing expense from one of its merchants, as reflected in its “other operating revenue.”

As for FYE 2021, the pandemic forced many Paytm merchants to cut costs or shut down during the lockdown periods. This had an impact on Paytm’s revenue, which mostly comes from the transaction fee it collects from merchants who use its payment services.

This is apparent in Paytm’s payment volume and gross merchandise value (GMV), which contracted by 14% in the first quarter of FYE 2021.

But as soon as restrictions in India eased, Paytm’s GMV made a comeback and has been on the rise since then. In fact, in the first quarter of FYE 2022 (April to June 2021), the company recorded one of the highest GMVs since its inception, thanks to rising transactions of online and in-store merchants.

2. Commerce and cloud on a decline

3. Operating losses still high

4. Rebound in marketing spending?

5. Contribution margin turns positive

6. Net profit not in sight

7. Paytm’s appeal

8. Growth via acquisitions