Paytm’s parent could boost lending and wealth management business after India’s biggest IPO
One97 Communications Ltd., on the verge of launching what could become India’s largest initial public offering, could invest more in its lending and wealth management operations to counter its low margins. main business of online payments, analysts said.
Debut is widely expected because One97 works Paytm, India’s largest online payment platform, and is 38% owned by Chinese fintech giants Alibaba Group Holding Ltd. and its subsidiary Ant Group Co. Ltd.
Investors are focusing on the business model of the company as online payments increase exponentially in India, but the business itself is hardly profitable for operators. A growing share of online payments in the country is done through a unified payment interface operated by the National Payments Corp. from India and backed by the central bank, which helps users avoid paying merchant fees.
“Payment income for Indians [financial technology companies] represent a tiny fraction of their transaction values, ”said Sampath Sharma Nariyanuri, FinTech Analyst at S&P Global Market Intelligence.
After deducting processing fees, most fintechs achieve, at best, breakeven transaction level, Nariyanuri said. “Therefore, the success of fintechs like Paytm will largely depend on their ability to rapidly expand adjacent financial services such as lending, insurance and wealth management products.”
One97 plans to raise 166 billion rupees, or $ 2.23 billion, from the IPO, according to its draft prospectus filed on July 15. If successful, it will eclipse the sale of shares of state-owned mining company Coal India Ltd. 2010, the largest Indian IPO on record. One97 could launch its IPO in October, around the Diwali festival, according to local media.
As of March 31, One97 served 333 million consumers and over 21.1 million merchants through its payment, commerce and cloud services.
Paytm operates its financial services business through partnerships with traditional institutions. On August 23, she announced an agreement with HDFC Bank Ltd. under which India’s largest private sector lender will encourage its merchant partners to use the Paytm point-of-sale payment system.
One97 also owns an e-commerce platform, Paytm Mall, which faces competition from well-funded players such as Amazon.com Inc., Flipkart Internet Private Limited backed by Walmart Inc. and Reliance Retail Ventures Ltd., which is owned by Reliance Industries. Ltd., the largest Indian company by market capitalization.
In its core business, Paytm faces competition from Alphabet Inc.’s Google Pay, Amazon Pay and PhonePe Private Ltd.
“All payment companies, not just Paytm, should look for other revenue channels like financial services,” said Pranav Bhavsar, Founder and Research Director of independent India-based investment firm ASA Capital Management. “Paytm’s greatest strength is its brand and its user base.”
Since its launch in 2010, Paytm has become a household name in India, facilitating even the smallest payments via smartphones. From vegetable vendors on tarps by the side of the road to taxi drivers, Paytm has become synonymous with online payment transactions. Its boom has coincided with the rise of smartphones in India, where applications in local languages and easy-to-understand symbols have enabled even those who cannot read or write to adopt mobile phone technology, surpassing the desktop computers.
One97 does not disclose the breakdown of revenue between its payments and financial services businesses. It said in its draft prospectus that payments and financial services accounted for 75.3% of total revenue of Rs.21 billion in the fiscal year ended March 31, up from just over 50% two years ago. years.
Revenue from commerce and cloud services, its second-largest segment, fell 38% to 6.9 billion rupees as customers cut spending on travel, movies and events due to the pandemic, said he declared.
For Paytm, “payment [and] financial services are on the rise while commerce and the cloud are on the decline, ”said Abhishek Shindadkar, analyst for India-based financial firm InCred Capital.
The Indian market is underserved for payments and financial services products, a segment One97 expects to grow, according to the prospectus. The company plans to use Rs 43 billion from the IPO proceeds to grow the Paytm ecosystem. According to the company’s draft prospectus filed on July 15, an additional Rs 20 billion will be spent on new business initiatives, acquisitions and strategic partnerships. The rest will be used for general corporate purposes.
A spokesperson declined to comment on plans to expand the company’s financial services business.
“They have built a very strong and significant customer base on the payments side, so people use e-wallets for bill payments, top-ups and more,” said Patrick Stokvis, vice president of the company. Third Bridge research. The company has historically focused on smaller traders in large cities in order to increase its customer base, although they may shift towards acquiring larger traders on the path to profitability, Stokvis said.
India saw a surge in consumer tech company listings in 2021 with relatively high valuations. Investor attention has shifted to India as China’s crackdown on tech companies ranging from fintech to education scared investors.
Zomato Ltd. food delivery platform. raised 93.75 billion Indian rupees in the country’s largest IPO this year. Oyo Hotels and Homes Pvt Ltd., OLA Fleet Technologies Pvt calling app. Ltd. and Pine Labs Private Ltd. are among other startups looking to tap investor interest in initial stock sales in India. Local media reports also listed Flipkart and K3 Education Private Ltd. of educational technology company Byju as IPO candidates. The amount of funds raised in IPOs has already reached $ 6.3 billion this year, surpassing the total for each of the past three years, according to data from S&P Capital IQ Pro.
As of August 24, US $ 1 was equivalent to Indian rupees 74.14.