The 497-page draft offer document filed by Paytm's holding company One97 communications for its Rs 16,600 crore IPO clearly hints at incurring losses in the foreseeable future to capture growth opportunities.
"We expect to continue to incur net losses for the foreseeable future and may not achieve or maintain profitability in the future," the company said. This is part of the risk factors that the company going in for IPO has to disclose in the draft prospectus.
The draft offer document, which the market regulator Securities and Exchange Board of India (Sebi) would review in the coming weeks, has attributed the reason for losses to the evolving digital platforms, products and services in the financial services business. The payments space is already seeing disruption from government-backed UPI payments infrastructure and also Bharat Bill Pay for payment of utility bills.
These government-backed payment platforms are available for everyone. The traditional banks, though a bit late in capturing the payments opportunities, are now building models around UPI.
Out of the IPO proceeds, the company has planned to invest Rs 4,300 crore in growing and strengthening its Paytm ecosystem, including through acquisition and retention of consumers and merchants and providing them with greater access to technology and financial services. The company would be investing another Rs 2,000 crore in new business initiatives, acquisitions, and strategic partnerships.
"Ït is difficult for us to predict our future results of operations or the limits of our market opportunity," the company said.
The company has been consistently making losses because of investments in its payments business and also the new financial services business in investment, wealth and insurance.
The losses were Rs 1,704 crore in 2020-21, Rs 2,943 crore in 2019-20 and Rs 4,235 crore in 2018-19.
Going forward, the company expects its operating expenses to increase on account of new hiring, expansion of operations and infrastructure both domestically and internationally, and products range.
"These initiatives may be more costly than we expect and may not result in increased net revenue. In addition, when we become a listed company, we will incur additional significant legal, accounting, and other expenses that we did not incur as an unlisted company," the company said.
The public listing of Paytm also means greater public scrutiny, profitability guidance, cash flows in the books, and also the predictability of business performance.
So far, the Noida-headquartered fintech company was in the private market for raising resources. The private market always values a business based on its customer base, network and potential scale. This is already built in the current valuations.
At the last private market fundraising exercise in 2019, the company was valued at USD $16 billion. The current valuation is expected to be around USD $24 billion.
Also Read: Paytm files DRHP for Rs 16,600-crore IPO
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