Sharma says Paytm’s business model less understood than others after poor market debut

One97 Communications, which runs digital payments platform ,
saw its stock plunge more than 26% from its issue price of Rs 2,150 in what turned out to be a disappointing debut for the digital payments major on the Indian stock markets. Vijay Shekhar Sharma, founder and CEO of One97 Communications, said the listing, which was much-hyped for being the largest public offering in the country, should be only seen as its “first day” on the markets and not as reflection of the company’s long-term performance.

Paytm’s IPO comes on the back of successful listings by other digital startups like Zomato, Nykaa, Policybazaar, which received higher valuations in the public markets than their private valuations. Sharma said fintech platforms like Paytm were not as well understood as other consumer internet firms that have gone public. “These are easy to understand models… If I sell a wallet or a phone or I can pick up food from a restaurant… then you know the business model compared to [payments]… how do you acquire customers? How do you make money and what’s cross-selling like? These are questions asked by public market investors,” Sharma told ET in an interview after the company’s listing on Dalal Street on Thursday.

He said stock markets are “opinion-polls” in the short-term and “weighing machines” in the long term. “Stock market cannot impact the purpose of the company,” he said, adding that Paytm still chose to go public as its business model requires it to create a huge ecosystem around it in the long term.

On Thursday, after trading hours,
Paytm had a market cap of a little over $13 billion, lower than its last private market valuation of $16 billion in November 2019,
when it raised funds from US asset manager TRowe Price and others.

Sharma, who was in high spirits despite the disappointing first day of trading, said it was ‘incredibly tough’ being the first in the industry to build a large firm and take it public. He cited the example of Flipkart founders Sachin Bansal and Binny Bansal, who he said set the bar for private funding in the Indian startup sector when they racked up $1 billion in 2014 on the back of the hugely successful Alibaba IPO. The massive fundraise had led to intense dealmaking for a year, when India saw its first tech and startup boom.

Sharma said that being on the forefront of doing things was incredibly tough. A large IPO, public market debut and subsequent scrutiny by companies (like Paytm) will allow more companies to follow the same path, Sharma said. “What today proves is that young, fledgling technology companies which do not have the pedigree of big names can still build incredibly large companies.”

Despite Paytm’s disappointing debut on the bourses, Sharma said the “beauty” of the process that Paytm has gone through proves that India has the capacity to absorb large IPOs. “The market has depth and there is a huge investor appetite for incredible companies that are serving Indian consumers,” he added. Paytm raised Rs 8,235 crore from anchor investors — large institutional investors — as part of its Rs 18,300 crore IPO.

After the IPO, China’s Ant Group and Alibaba together hold close to 30% in Paytm. That could continue to be a concern for the company in getting regulatory clearances, a report from global brokerage firm Macquarie said on Thursday. Sharma said this was never a problem for the company and it is not seeking any new licences from regulators currently for its business plans. “The fact that we are listed also tells you who (which investor) has what rights (in the company),” he said.

While analysts said overpricing the IPO may have led to the drop in share price when it hit the markets, concerns remain over its growth in many of its businesses. While it has been a clear leader in the mobile wallet space, the company is seeing increased competition in areas such as wealth management, payment gateway, insurance and other verticals. Sharma, however, said they were market leaders in most payments-led businesses. “We fundamentally believe that payments-led financial services is an incredible opportunity in India. That is what we are committed to and will remain committed to in the foreseeable long-term future,” he said.

The company is betting big on lending and insurance to build its financial services play. Sharma said the aim is to leverage Paytm’s existing user base of 300 million by cross-selling these financial products.

“I saw the competition from Google, Facebook and probably Walmart also but none of them were able to move us from the spot that we are at after they did everything they could have,” Sharma said when asked about the intense competition in the online financial services sector.

He added that Paytm has seen more competition than any other firm in the ecosystem. Google’s payments unit Google Pay and Walmart-owned PhonePe have been increasing their market share on the Unified Payments Interface (UPI) platform and have a healthy lead over Paytm. Facebook-owned WhatsApp has also launched payments services using UPI.

While Paytm’s operational revenue was down 14% in FY21 to Rs 2,802 crore with a lower loss of Rs 1,701 crore, its red herring prospectus( RHP) showed that its operational revenue during the June quarter of financial year 2022 jumped over 61% to Rs 890 crore. During the same period, its losses totalled Rs 382 crore compared to over Rs 284 crore in the same period a year ago.

Paytm’s revenue is being driven by payment and financial services, which now contribute around 77% of its total revenue, according to the filings. Sharma said the company will continue to focus on the broader financial services business instead of just one or two specific payments businesses.