Digital payments startup Paytm launches India’s biggest IPO

With its $2.46 billion target, Paytm, backed by Ant Group, SoftBank, Berkshire Hathaway, will be India’s biggest IPO.

India will see its biggest ever initial public offering with digital payments platform Paytm, which will raise around $2.5 billion, which has already been a record year for share listings.

Paytm is backed by Chinese tycoon Jack Ma’s Ant Group, Japan’s SoftBank and Warren Buffett’s Berkshire Hathaway, which together own about a third of the company.

The firm was founded barely 10 years ago by Vijay Shekhar Sharma, the son of a teacher, who says he learned English by listening to rock music.

According to Forbes, he was ranked India’s youngest dollar billionaire four years ago at the age of 38 and now has a net worth of $2.4 billion.

His holding of around 14 per cent will probably make him even richer with the IPO that opens on Monday.

According to the prospectus, Paytm will issue new shares worth 83 billion rupees ($1.1 billion), while existing shareholders will sell shares worth $1.34 billion.

The IPO is expected to make Paytm India’s most valuable tech company with a valuation of $20 billion, up 25 percent from two years ago.

The platform was launched in 2010 and has become synonymous with digital payments in a country traditionally dominated by cash transactions.

It has benefited from the government’s efforts to curb the use of cash – including the demonetization of nearly all banknotes in circulation five years ago – and, most recently, from COVID.

“I didn’t know corona”[virus pandemic] But Paytm was very helpful to me during the pandemic,” grocery store owner Naina Thakur told AFP news agency.

Thakur said about a third of his customers pay him through Paytm for milk, bread and other daily groceries.

“It is much easier than bank transfer as they only require my mobile number to make the payment and I get the settlement within seven hours,” she said.

Thakur is one of nearly 22 million Indian shop owners, taxi and rickshaw drivers and other vendors who accept payments as low as 10 rupees ($0.13) using Paytm’s ubiquitous blue and white QR code stickers.

According to the company’s regulatory filing in July, the platform had 114 million active annual users.

The company said it transacted over $54bn in the 2020-21 financial year.

The number of mobile payments in India has skyrocketed over the past four years, accounting for 26 billion transactions in 2020-21.

Mumbai-based financial analysis firm Motilal Oswal estimates that mobile digital payments in the country will cross the value of $3.1 trillion by 2026.

‘Loss for the near future’

But Paytm has consistently made losses and is not sure if it will turn a profit. It reported a net loss of 17 billion rupees ($231.6m) last year on revenue of around 32 billion rupees ($436.1m).

“We expect net losses to continue for the foreseeable future and we may not achieve profitability in the foreseeable future,” the prospectus warned.

Paytm has reported negative cash flows for the past three years, mainly on account of operating losses.

With its $2.46bn target, Paytm will surpass Coal India’s $2bn issue in 2010 to become India’s largest IPO.

Prior to the offer, Paytm raised Rs 82.35 billion ($1.1 billion) last week from 74 anchor investors, including BlackRock and Canada Pension Plan Investment Board.

Paytm will issue shares in the price band of Rs 2,080-2,150 ($27.9-$28.9) in this offering, which is set to close on Wednesday.

Hemang Jani, head of equity strategy at brokerage Motilal Oswal Financial Services, told Al Jazeera that there was an investor appetite for fin tech and startups in India and globally, “At some point investors used to ask questions about business models, profitability and . cash flow”.

Indian companies have so far raised a record $9.7 billion through IPOs in 2021, data from the Market Monitor Prime database showed.

With its $1.3bn share issue in July, food delivery giant Zomato had the country’s biggest IPO ever.