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Paytm: Indian unicorn comes with a hefty price tag

Asian fintech start-ups leave western peers far behind. Paytm is no exception. The Indian digital payments app, reported to be on the verge of a $2bn-plus offering that values it at about $25bn, allows users to trade gold, play games, shop and even book their Covid-19 vaccination. 

Yet even with a potential record IPO on the cards, Paytm struggles to make money. The company reported a loss of $228m last year. Its prospectus warns investors that it expects “to continue to incur net losses for the foreseeable future”.

Backed by a holy trinity of investors — SoftBank, Alibaba affiliate Ant and Berkshire Hathaway — Paytm wowed merchants and consumers alike when it appeared in 2010. India’s young, mobile-friendly population played straight into its hands. It also became a natural beneficiary of the country’s 2016 madcap demonetisation scheme, which rendered the bulk of banknotes invalid overnight. Paytm took the opportunity to spread its wings into new areas, such as booking movie tickets and holidays, as well as financial services.

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Unlike Chinese peers, however, it is not shielded from global competition. Google Pay and Facebook-owned WhatsApp Pay — which last year won regulatory clearance — both want a slice of the world’s soon-to-be most populous country. Google, along with PhonePe, dominates the Unified Payments Interface, a bank-backed payments framework. Paytm’s revenues, which come mostly from merchant fees, barely budged in the fiscal year to March 2020 and slid 15 per cent last year to $375.6m.

The reported valuation of $25bn therefore looks punchy. Dominant south-east Asian superapp Grab is due to go public via a Spac merger. That should value it at $40bn, implying an enterprise value of 25 times trailing sales. On a similar basis, and even using pre-Covid revenues, Paytm would achieve more than twice that amount. Forecast numbers stack up better. The merchant base, for example, has doubled over the past two years to 21.1m.

But all this comes with hefty regulatory risks. Paytm will need to count on India’s buoyant stock market to make this unicorn fly.

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