BENGALURU: Increasing competition, regulatory hurdles, Covid impact and marketing spend may hit the near-term profitability of Paytm even as the company eyes listing on the domestic stock exchanges at an all-time high issue size of Rs 16,600 crore ( nearly $2.2. billion).
“We have a history of net losses, we anticipate increasing operating expenses in the future, and we may not be able to achieve and maintain profitability,” Paytm said in its draft red herring prospectus (DRHP) filed with the securities exchange board of India (SEBI) on Friday.
The IPO slated to be launched during the festive season later this year will put behind some traditional energy, fuel companies like Coal India( Rs 15,475-cr IPO) and Reliance Power (Rs 11,700-cr IPO) behind it, essentially signalling a transition of the economy from oil to data.
Paytm will debut on the stock exchanges at a valuation of nearly $30 billion, almost double than its earlier $16-billion valuation. The Rs 16,600-crore IPo will comprise a fresh issue of equity shares worth Rs 8,300 crore and an Offer of sale by its existing shareholders aggregating to another Rs 8,300 crore.
Almost all the key shareholders including founder Vijay Shekhar Sharma, Softbank , China’s Ant Financial group, Alibaba, SAIF partners, are reducing their stakes whereas business magnate Ratan Tatas fund and other minority stakeholders may exit the company fully. The company is also looking to raise Rs 2,000 crore (nearly $250 million) in a pre-IPO round from various investors. Sharma, Rata Tata along with Hong Kong-based venture capital fund SAIF Partners will have the meaty returns from the IPO with their equity shares acquisition prices lowest amongst all the shareholders, as per the filings reviewed by TNIE.
Will losses be the concern?
With the new-age tech companies lining up before the regulators for going public, their balance sheets with annual losses have invited attention.
Paytm said in its draft filing that it doesn’t anticipate profitability in near future in the face of heated competition in its payments business (which contributes 52 % of the total revenues), increased expenses on marketing, promotions, Covid’s impact on Indian economy, furthering investment in technology infrastructure and hiring.
With a bouquet of services from payments, e-commerce, insurance, gaming to lending, Vijay Shekhar Sharma’s plan to get millions of Indians to transact digitally is also likely to hit regulatory hurdles, which as per the company prospectus may hit the business. Paytm is also wary of the investments and acquisitions being made by its rivals Google, Walmart and Amazon in the payments space, as indicated in the company’s draft paper, that could bring down its market share.
