Loss making, but IPO bound! When can Paytm deliver profit?

MUMBAI: The largest payment services provider in the country, Paytm, owned by One97 Communication, is planning a $3 billion initial public offering (IPO) later this year, a Bloomberg report said on Thursday.

The size of the IPO could be the largest ever in India’s capital market history dwarfing Coal India’s Rs 15,000 crore public offering of 2010. The Bloomberg report said that Paytm could seek a valuation of around $25 billion to $30 billion when it hits the primary market around Diwali.

That said, it is very likely that the Berkshire Hathaway-backed company will be a loss-making entity when the subscription window for the IPO opens for the public. In 2019-20, the payment services company reported a net loss of Rs 2,942 crore and burned cash from operations worth Rs 2,385.3 crore.

The key question then is, when can potential investors expect the company to become profitable?

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According to Gautam Chhugani of Bernstein, the rising heft of Paytm’s non-payment services could hold the key to when the company will break even. Chhugani, in a note, said the company is steadily shedding its reliance on the payment services and making a mark in credit tech, insurance tech and wealth tech – three arms that will make the company the ‘superapp’ of financial services it aims to be.

Bernstein believes the credit technology vertical of the Softbank-backed company will lead the next leg of revenue as Paytm has already made a strong start on disbursals, which have grown month-on-month.

Paytm’s mutual fund distribution and broking business under Paytm Money has also made a solid start, while the company is also looking to acquire a general insurance company to get a foothold in health and vehicle insurance.

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Chhugani expects the non-payment services business to grow 87 per cent annually as the company’s revenue run-rate is projected to hit $1 billion mark in 2022-23. Within the non-payment business, the credit, wealth and insurance operations could see annualised growth of 330 per cent over the next three years.

“With increased financial discipline (rare in the hyper-competitive payments space), Paytm is on track to break even in 12-18 months. We expect Paytm to continue being the largest payments and fintech ecosystem in India,” Chhugani said.