Analyzing PayTM Business Before Its IPO

With PayTM IPO set to open on November 8, it's about time we take a look at its business model in today's pill.

Brief History
It was started in 2010 as a platform where people can recharge their mobile numbers. In 2014, it launched its digital wallet where people can load money and pay for various utility bills but it was only after 2016 (Demonetization) it became famous. And today we will look beyond its UPI payment presence and the real deal.

Merchant Segment
PayTM has a sizeable share in UPI payment with 13% but it is the Peer-to-merchant (P2M) segment where it is truly dominant with a lion's share of around 50%. For the uninitiated, P2M is when you scan a QR code at a merchant's store for payments. And this is the segment that is important to focus on, with PayTM seeing a growth of 33% Year-on-Year (YoY) in terms of value and number of merchants currently at 20 million from a meager 7 million two years ago. But the Question is You as a customer ultimately pay through UPI and no one makes money in that, So How is this segment important?

Well, as it turns out for PayTM this is a gateway to let Merchant borrow money in small sums for their needs and as the merchants receive payments through PayTM gateway, they know about a Merchant's business and its creditworthiness, things needed to lend a loan to someone. But, But, But.... the issue is that PayTM set up a Payments Bank in 2017 which as per regulations comes with a lot of ifs and buts. So they needed to route this money lending process through an intermediary which ultimately costs them a share of their profit. Good news you ask? As per law, a Payments Bank can apply for a small finance bank license after 5 years which has lots of benefits over a Payments bank like being allowed to lend money..!!. So it seems like the best is yet to come for PayTM.

But what about the retail segment? After all the company incurs expenses for this segment as well, how will or how is this segment bringing in money?

Retail Segment
Okay, this is where we are, as of now PayTM offers the usual loans to its retail customers which are by the way 330 million users and a sizeable 50 million users who do at least one transaction a month. But the potential money-making machine is the mutual fund, insurance, and stockbroking business. There is a lot of market untapped and a lot of money to be minted from this Retail segment.

IPO Details
Without much fuss here we list some important info on the IPO:-

Dates - 8th November 2021 - 10th November 2021

Issue Size - INR 18,300 crore
out of which Fresh Issue - INR 8,300 crore &
Offer for Sales (OFS) - INR 10,000 crore

Price Band - INR 2,080 - INR 2,150

Minimum Lot Size - a lot of 6 and in its multiple thereafter with one lot of INR 12,900.

Some Key Investors Exit (In Partial or Full) - Founder Vijay Shekhar Sharma, Ant Financials, Alibaba, Elevation Capital, and SAIF III Mauritius Company and Saif Partners

Share Allotment Date - 15th November 2021 (Expected)

Share Listing Date - 18th November 2021 (Expected)

We have tried our best to list out the important money-making verticals for the company and if you are wondering why we left out PayTM Mall, the e-commerce venture of the company which by many experts is termed as failure is because we didn't want to stretch the article and also it is an old story (Read this article here). Other than these PayTM IPO is by far the largest in Indian Stock market history, in which the company is eying a valuation of $25-30 billion with operating revenue of $375.4 million in 2021, by any means this kind of financials doesn't justify that. Also PayTM is also a loss-making company whose income is decreasing by 6% YoY since FY19. Amidst all, We just hope that in the coming time PayTM seizes the opportunities mentioned in the above articles which obviously the Company knows and we wish them success in its IPO and its future endeavors. Also do let us know if you are applying for the IPO or will add stock to your portfolio in the future?

Do let us know your thoughts on the above topic in the comment section and let a healthy conversation begin.

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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.


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