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Paytm IPO Sees Retail Portion Subscribed By 80% On Day 1

Paytm IPO’s retail subscription is the highest on Day 1 for IPOs of over ₹1,000 crore issue size.

India’s leading digital payments and financial services company Paytm has made its way into the stock markets. The company opened for bid/offer on November 8 and it will stay open till November 10. The price band for the Paytm IPO has been kept in the range of ₹2,080-2,150, as Paytm targets a $20 billion valuation. The company is set to raise ₹18,300 crore from the markets through a fresh issue of ₹8,300 crore and an offer for sale of ₹10,000 crore.

On Day 1, the company saw 18% overall (including QIB, HNI and Retail) subscription of the main book size of ₹10,000 crore. Of the said amount, almost ₹1,800 crore is the retail tranche — which has been 80% subscribed. 

In fact, Paytm IPO’s retail subscription is the highest on Day 1 for IPOs of over ₹1,000 crore issue size. Historical records show that for large IPOs, while retail investors bet on the first day, QIB and HNIs invest in the later days of the subscription. Some of the largest IPOs from before like Coal India had seen muted demand on the first day. 

As per reports, QIBs participate only in the second or third day of the IPO. This is because of a recent SEBI guideline that QIBs have to make the 100% payment upfront. So, to invest in larger issues, these institutions end up taking loans from banks and to avoid interest addition, they wait until the later days of the subscription. 

Paytm has already raised ₹8,235 crore from anchor investors — which is the largest anchor round so far in India with ‘long term investors’ joining the IPO. 

And now, analysts too are placing their bets on the IPO. Analysts at Canara Bank Securities said “Subscribe for the long term” for the Paytm IPO. “It is India’s leading digital ecosystem for consumers and merchants. It offers payment, commerce, cloud, and financial services through its payment app. The high penetration in internet and smartphone users has supported the company to grow at a faster pace due to attractive user interface by Paytm app,” said the analysts. 

Paytm, which started off as a mobile wallet in 2009, has gone on to add many more businesses —  Paytm Payments Bank, Paytm Payments Gateway, Paytm Payout, Paytm Money, Paytm Insider, Paytm Insurance, Paytm Postpaid (Buy Now Pay Later), Paytm for Business, Paytm Credit Cards, Paytm First Games along with utility bill payments, offline merchant payments, rental payments, content and much more.

The company has seen a huge uptick in its revenues driven by its payments and financial services offerings. The company’s revenue is up by 46% to ₹9,480 million in Q1FY22, from ₹6,494 million in Q1FY21. It is on the path to profitability as the company has already reported contribution margin profits. 

And that’s also another factor that’s impressing analysts. Analysts at Reliance Securities said “Subscribe for long term” for the Paytm IPO as the company has shown great business strength despite the COVID-19 pandemic. “A strong 33% CAGR in GMV over FY19-FY21, despite the pandemic, vindicates Paytm’s leadership and brand value. This along with 17% estimated CAGR in digital payments in value to US$40tn during FY21-FY26E indicates a sustainable growth in the long run,” said a report from Reliance Securities. 

The analysts at Reliance Securities also defended Paytm’s valuation of $20 billion as it “has created significant scale and brand equity that are likely to sustain”. 

“Given that the company’s ecosystem allows it to address large market opportunities, scale and reach, product, technology and leadership – We give this IPO a “Subscribe (Long-Term)” rating,” said analysts from Anand Rathi. Analysts from the leading financial and investment advisory also listed Paytm’s ecosystem, trusted brand and scale, the company’s insights of Indian consumers and merchants, its technology DNA, leadership and culture as well as the network effect it creates as its strengths. 

Paytm has also grown to be a financial services giant, which brings with it more opportunities. Paytm’s payments and financial services alone contribute to   almost 80% of its revenue. 

“In addition, the app users can avail Banking as well as Non-Banking financial services on the mobile application. The company has market share of approximately 40% in the overall payments transaction volume, and 65% – 70% market share of wallet payments transactions in India as of FY 2021. The company exhibits substantial growth in user base and GMV since its inception within the Fin-tech sector. Moreover, the business is scalable due to the high convenience of digital banking,” said analysts from Canara Bank Securities. 

Blue-chip global investors and tech-focussed funds have made their first-ever investment in Indian public markets through the Paytm IPO while investment giants like Blackrock, CPPIB and GIC have made their largest bets in an Indian IPO. The company has also attracted world’s top pension funds, superannuation funds as well as sovereign wealth funds like Government of Singapore, CPPIB, ADIA, APG, City of New York, Texas Teachers Retirement, NPS Japan, University of Texas, NTUC Pension out of Singapore, University of Cambridge. The largest Emerging Markets dedicated investors like Standard Life Aberdeen, UBS, RWC have also taken part in Paytm’s anchor round.

Source: Business World

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