Of the amount raised, Paytm will use Rs 4,300 crore to acquire consumers and merchants, while Rs 2,000 crore will be used for investing in new business initiatives, acquisitions and partnerships.

Person using the Paytm app on a phone hands resting on a yellow table only hands and phone in picture
Atom Friday, July 16, 2021 - 19:00

One97 Communications, the parent company of Paytm, on Friday, filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for what could be India’s largest Initial Public Offering (IPO). The company is looking to raise Rs 16,600 crore through its IPO — where Rs 8,300 crore will be through a fresh issue of shares and the remaining Rs 8,300 crore will be raised with existing investors selling their shares (OFS).

This comes days after the company’s shareholders approved the decision to raise upto Rs 12,000 crore from a fresh issue of shares, as well for founder Vijay Shekhar Sharma to be declassified as the firm’s promoter. In the DRHP, Paytm identifies itself as a professionally-managed company with no identifiable promoter. 

Since Paytm has not turned a profit so far, not more than 10% of the issue will be open for retail (individual) investors. Furthermore, it added that the fresh issue (of Rs 8,300) will be reduced if it raises capital in a pre-IPO round.

Five things to know:

Who’s selling shares: The offer for sale will see its existing investors selling their shares. These include Alibaba’s group firm Antfin (Netherlands) Holding BV (which has a 29.6% stake), Alibaba.com (7.2%), SAIF Partners, Warren Buffet’s Hathaway Berkshire, Ratan Tata’s RNT Associates, among others.  The document however does not disclose the share price and the percentage of stake that will be diluted.

Paytm to remain ‘Foreign-owned’: The DRHP notes that Paytm will remain a “foreign owned and controlled” company even after the offer in accordance with the Consolidated FDI Policy and FEMA [Foreign Exchange Management Act] Rules and accordingly 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,” it said in the DRHP.

Losses to continue: Paytm also noted in the DRHP that it may not be able to achieve and maintain profitability, and that it expects to continue to incur net losses for the foreseeable future and may not achieve or maintain profitability in the future

In FY 2019, FY 2020 and FY 2021, revenue from payment and financial services accounted for 52.5%, 58.1% and 75.3% of the company's revenue from operations.

The company reported that its losses narrowed from Rs 2,943.3 crore in FY20 and Rs 4,235.5 crore in FY19 to Rs 1,704 crore in FY21. Its total income reduced to Rs 3,186.8 crore in FY21, from Rs 3,540.7 crore in FY20.

What it will use the funds for: Of the amount raised, Paytm will use Rs 4,300 crore to acquire consumers and merchants, while Rs 2,000 crore will be used for investing in new business initiatives, acquisitions and partnerships. 

The DRHP said that the company’s merchant base has grown from 11.2 million in March 2019 to 21.1 million in March 2021, with gross merchandise value from Rs 2,292 billion in FY 2019 to Rs 4,033 billion in FY 2021.

Legal tussles & risk factors: In January this year, Paytm received a notice from ED, Bengaluru pertaining to the investigation into Chinese loan apps, and directed the company to cease debit operations in relation to the entities mentioned.

Outlining the pending litigation against the company, Paytm further added that it received summons from the Enforcement Directorate in Hyderabad in relation to certain ongoing cases in relation to Prevention of Money Laundering Act, 2002.

Paytm has also said that lockdowns imposed due to the pandemic impacted its operations, especially its commerce and cloud business with revenue decreasing by 38% to Rs 6,932 million in FY21. “Our Commerce GMV (Gross Merchandise Value) declined in FY 2021 primarily due to disruptions to our partners in travel, entertainment and e-commerce industries,” it noted in the DRHP. 

Paytm has also said in its DRHP that any privacy or data security breach, cyber-attacks or internal misconducts could damage its reputation and brand and substantially harm the business. 

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