This year marks a significantly high amount of capital raised through IPOs in the Indian market with companies having raised over Rs. 27,417 crore in the first half of the year. Amidst the country’s investment frenzy, Paytm is all set to go public on November 8 with its IPO opening for subscription at Rs. 2080-2150 per share. This IPO is going to be the largestone in the Indian stock market history valuing the company at $19.3- $19.9 billion. Paytm aims at raising Rs. 18,300 crorefrom the IPO which constitutes raising 8,300 crores from fresh equity and the remaining Rs. 10,000 crore from Offer of Sale (OFS) by existing shareholders. The initial offering was supposed to be fixed at Rs. 16,600 crore, but was hiked to Rs. 18,300 crore due to an increased investor demand.
India’s digital payments are likely to grow at a CAGR of 27 per cent during the FY20-25 period. The digital transactions are expected to jump from Rs 2,153 lakh crore in FY20 to Rs 7,092 lakh crore in FY25, according to the India Trend Book Report 2021 launched last week by the Indian Private Equity and Venture Capital Association (IVCA) and Ernst & Young. The payment gateway aggregator market is expected to grow at around 19 per cent CAGR from Rs 9.5 lakh crore in FY20 to Rs 22.6 lakh crore in FY25 while the merchant payments segment is likely to see 52 per cent growth from Rs 4.7 lakh crore to Rs 33 lakh crore during the said period.
One97 Communications, Paytm’s parent company, stated that they intend to use the funds to strengthen Paytm’s ecosystem by holding on to existing customers as well as acquiring new customers and merchants by offering marketing cash backs, promotions and access to technology. The company also intends on investing in new business initiatives, acquisitions and strategic partnerships. Paytm has undergone a substantial expansion in the lending sector and in Q2 FY22 it disbursed 2.84 million loans. It recently acquired a digital lending platform, Urja money Pvt. Ltd., which provides a loan management service through its proprietary solution CreditMate.
Paytm draws its revenue from transaction fees charged from merchants based on the percentage of GMV (Gross Merchandise Value). It also charges customers convenience fee for certain transactions. From the Red Herring Prospectus of Paytm’s IPO, Paytm’s customers have increased to 337 million users and over 21.8 million merchants.
Owing to the fact that the fintech company took a big leap in revenue, by 46% from 6494 million Q1FY21 to 9480 million in Q1FY22, its growth prospects seem obvious.
Payment and financial services contribute to almost 80% of Paytm’s total revenue at 6894 million as of Q1FY22. Further, new developments brought about by the company like the launch of UPI, QR code and fastag technologies provides enough proof of Paytm being a pioneer in product innovation. While the firm continues to innovate, it also taking necessary steps to explore international opportunities, especially in the developed markets, where it can either launch its merchant services or launch consumer facing platforms. Paytm piloted the bill payment services in Canada in 2017. Subsequently, it partnered with Softbank Corp. and Yahoo Japan Corporation to launch PayPay, a leading digital payments and financial services company in Japan in 2018.
The scope of internet penetration and an increase in the number smartphone and social media users, will propel the growth of digital payments sector.
In addition to being a strong tech platform, Paytm also carries the first movers advantage in the digital payments space. The business and consumer confidence is expected to improve in the coming years, geared with a streamlined organizational design, the company intends to grow its businesses. The improvement in consumer sentiment and increased consumer spending through online platforms will enable the growth momentum to pick up.
The management continues to be cautiously optimistic towards the external economic environment and expects consumer demand to become more consistent and robust in the ensuing fiscal years. Further, various policy decisions taken would act as a growth channel for the Company which would contribute to increased revenues and higher margins. Further, a number of initiatives for productivity and profitability, increased investments in technology, customer engagements, loyalty programs, and improving the customer experience, have shown encouraging results.
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