Paytm’s parent One97 Communications has filed its draft red herring prospectus (DRHP) with India’s markets regulator SEBI to raise Rs 16,600 crore through an initial public offering, which would make this the country’s biggest IPO, ever. Coming close on the heels of Zomato’s successful IPO, the Paytm IPO, when done, will easily be the high point of 2021, as far as public fundraising goes.
For investors in India, especially retail investors, it’s the start of a new paradigm of investing in digital firms that promise high growth and little profits in the foreseeable future. It is interesting that the biggest IPO crown till now was held by a public sector firm, Coal India Limited, whose Rs 15,200 IPO in 2010 had been sold on the assurance of predictable profits, dividends, and a monopoly market. Paytm is anything but that.
According to the company’s DRHP, Rs 8,300 crore will be primary share sales or fresh issuance, while Rs 8,300 crore will be an offer for sale, where existing shareholders will sell their shares. The face value of each share is Re 1.
Since Paytm is yet to become profitable, the retail portion of the IPO is limited to under 10%, as per the ‘Issue of Capital and Disclosure Requirements (ICDR) Regulations’ laid down by markets regulator SEBI. The rest is open to QIBs, Anchor Investors and HNIs.
Paytm plans to use Rs 4,300 crore from the net proceeds for growing its ecosystem including the acquisition of consumers and merchants. It will use Rs 2,000 crore towards investing in new business initiatives, acquisitions and strategic partnerships and the remaining will be used for general corporate purposes.
However, it is worth noting that if Paytm raises capital in a pre-IPO round, the amount of its fresh issue will be reduced by the amount it raises in the round, the company said in its DRHP.
Major investors in the company such as Antfin, Alibaba, SoftBank Vision Fund (Panther), BH International and Elevation Capital (formerly known as SAIF Partners) will be selling their shares in the company through an offer for sale. Paytm’s founder Vijay Shekhar Sharma will also be selling a part of his shares. For some of these investors, who invested, and stayed invested through a large part of the firm’s growth trajectory, the IPO is a vindication and a lucrative reward for their faith in the company.
The DRHP, however, does not specify the number of shares these shareholders will be selling.
Apart from the above, 18 other investors including Mountain Capital Fund, Ratan Tata’s RNT Associates, DG PTM LP, besides 15 other individuals will also be tendering their shares in the offer for sale.
The company’s DRHP comes just days after its rival MobiKwik filed its draft papers with SEBI for a Rs 1,900 crore IPO.
Paytm also said that it is, and will continue to be, a “foreign-owned and controlled” company even after the IPO. As such, it will be subject to Indian foreign investment laws.
“Further, till the time we continue to be a foreign-owned and controlled company, we may not be able to undertake certain commercially attractive business activities or investments without prior approval of the Government or at all,” Paytm’s DRHP said.
Paytm had also filed its consolidated financial statements for FY21 in the first week of July. According to statements, the company was adversely affected by the Covid-19 pandemic and as a result, its total income dropped by nearly 10% to Rs 3,186.8 crore in FY21 from Rs 3,540.8 crore in FY20.
The contraction of revenue was caused by reduced transaction volumes due to reduced commercial activity caused by lockdowns imposed during the period. While the overall collections suffered amidst the pandemic, the management has managed to curb expenses across most cost centres during the last fiscal.
Paytm’s consolidated total expenses during FY21 shrunk by 22.08% to Rs 4,782.95 crore in FY21 from Rs 6,138.2 crore in FY20. Even with a reduced scale of the transaction, Paytm Group, which comprises holding entity One97 Communications along with 41 of its subsidiaries, associates and joint ventures, managed to curb its losses by a significant 42% from Rs 2,932.4 crore in FY20 to Rs 1,710 crore in FY21.