Initial sale of Paytm shares, which opens for subscriptions on Monday, aims to increase ??18 300 crore in a group of ??2,080-2,150, valuing the company at ??$ 1.39 trillion at the top.
âAt the high end of the price bracket, Paytm is valued at 49.7 times FY 21 revenue. While valuations may seem expensive, Paytm is well positioned to benefit from the exponential growth in mobile payments between FY21 and FY26 and therefore the valuations are justified, âsaid Jyoti Roy, equity strategist at Angel One Ltd.
Paytm is India’s largest digital ecosystem for consumers and merchants, with a Gross Value of Goods (GMV) of ??4 trillion in FY21. GMV, or the total value of goods sold over a period, measures the use of the site to sell goods owned by others.
According to Motilal Oswal Financial Services, the main opportunity for Paytm is to monetize its large consumer base of 333 million and its merchant base of 21 million through the cross-selling of financial services such as credit, wealth and insurance. Currently, payments and financial services represent 75% of total basic income. However, Motilal Oswal Financial Services expects the share of non-payment activity to increase rapidly.
An increase in the payment processing fees that Paytm pays to financial institutions and card networks could significantly affect profitability, as those fees represent 40% of total operating expenses, Motilal Oswal said.
Paytm derives most of its income from the transaction fees it collects from merchants for payment services. During FY19, FY20, FY21 and T2FY22, income from payment and financial services represented 52.5%, 58.1%, 75.3% and 77.4% of its income, respectively, from 46 transactions.
Paytm recorded negative cash flow from operating activities for fiscal years 19, 20 and 21, primarily due to operating losses and additional working capital requirements.
âAny negative cash flow in the future could adversely affect operating results and financial condition,â ICICIdirect analysts said.
Paytm, which started as a mobile bill payment and top-up platform in 2010, has gradually built a payments-focused ‘super app’ and has grown into a full payments ecosystem, covering payments, credit, l insurance, merchants, wealth management and e-commerce services. , among others.
Aswath Damodaran, professor of finance at New York University’s Stern School of Business, said in his October 4 blog that since almost all of Paytm’s value comes from expectations for the future, and that there is significant uncertainty on each dimension, it should come as no surprise that the estimated range of value is immense, with a 3% probability that the company’s equity is worth nothing more than ??$ 2,000 billion (approximately $ 27 billion) at the 90th percentile.
âEven if you strongly favor the company and find it undervalued, it would be pride to focus your portfolio around this stock. In other words, this is the type of stocks that you would invest 5% or maybe 10% of your portfolio in, not 25% or 40%, âhe said.
If he were to invest in Paytm, it shouldn’t just be priced right, i.e. trading for less than ??$ 1.5 trillion (approximately $ 20 billion) “but also with the acceptance that this cannot be a passive investment (buy and hold), but an investment that will require active engagement and monitoring of actions and performance of the company, âhe added.
Last week Paytm increased ??8,235 crores from anchor investors, with the anchor round oversubscribed 10 times. The issue is a combination of fresh shares and an offer to sell. On the net proceeds of the new issue, ??4,300 crore will be used to develop and strengthen the Paytm ecosystem, including acquisition and retention of consumers and merchants. Out of the total, ??2,000 crore will be used to invest in new business initiatives, acquisitions and strategic partnerships. In addition, residual funds will be used for general corporate purposes.
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