BlackRock sees potential in India’s largest IPO, Paytm

Paytm, one of India’s leading digital payment start-ups, is going public with the biggest IPO to date. Valued at about Rs. 18,000 crores, this public issue has created a buzz in the market since its announcement. Being an unprofitable business, the world’s largest asset management firm BlackRock Inc. sees potential in this IPO.

But, what do they see in this business? In one word: the power of raw data.

Paytm, or One97 Communications Limited, has recently tied down BlackRock Inc., alongside the Canada Pension Plan Investment Board, and sovereign wealth funds of Abu Dhabi and Singapore as its anchor investors. According to a leading news agency, the company selling a stake of about $1.1 billion to cornerstone investors reflects demand as high as 10 times than what was initially allotted for this segment.

Paytm’s Rise to Prominence

In 2016, the Government of India’s efforts to demonetise currency notes of Rs. 500 and Rs. 1000 saw an overnight rise in Paytm’s customer base. The company, whose name is short for ‘pay through mobile’, became a sensation at that point. Berkshire Hathaway Inc., led by Warren Buffet, Softbank Group Corporation and Alibaba Group Holding Limited, invested in this start-up.

The Landscape is Now Different

In 2021, India’s technological landscape is now different. Nowadays, companies receive ‘next to nothing’ to receive payments through smartphones. Moreover, this pricing pressure is not going to reduce anytime soon. Additionally, merchants would like to pay less even for ‘add-on’ services like managing refunds and returns or reconciling accounts.

Back in the day, when the company was not managing 57 million unique users every month, they used to receive Rs. 162 in direct costs to generate revenue of Rs. 100. However, this did not include overheads like brand-building or salaries. Paytm used Rs. 86 of that to offer cash back and other facilities. Rs. 70 went towards processing payments.

The Tide is Now Turning

In the recent quarter, Paytm has now registered a surplus of Rs. 27 against Rs. 100 revenue. Nonetheless, with added overheads, it is not yet profitable, but it is reaching there. Even though mobile wallet services have now become a commodity, Paytm’s economics are improving.

Moving ahead, the base technology that Paytm uses is a shared one that anyone can commercialise. Therefore, even though Paytm manages about $80 billion payments through 22 million merchants, which is equivalent to Google Pay and PhonePe, its revenue rate stays at just 0.6%.

Parting Thoughts

A high volume and low-margin business generate its own data pool. Since retailers in India are often too small or informal to secure credit, digital payments can act as a reliable alternative. Also, it often acts as the only informational collateral.

Furthermore, the interest of anchor investors in this model digitisation is its biggest validation yet. An open market platform operating on public utility can be a viable platform to counter predatory pricing and proprietary platforms. Therefore, what a company loses in take rates, makes up for it in the sheer volume of it.

If you are planning to invest in Paytm’s IPO, you can do it by using the Angel One website.

Frequently Asked Questions

When is the Paytm IPO going live?

The initial public offering of Paytm is going live on 8 November 2021.

Who is the registrar of Paytm’s IPO?

Link Intime India Private Limited is the registrar of Paytm’s IPO.

What is the listing date of Paytm’s IPO?

The listing date of Paytm’s public issue is 18 November 2021.

What is the price band of Paytm’s IPO?

The price band of Paytm’s IPO is Rs. 2,080 to Rs. 2,150 per equity shares.