Dynamic India's tech market has attracted the attention of global investors. In this release, we highlight Paytm, a Fintech Unicorn, and the lessons learned by sophisticated experienced investors. You can find previous releases on the tech climate for this and other vertical markets at www.ekalore.com/india-business
Dynamic India has attracted foreign investors to continue fueling more than a dozen mobile payment ventures and development-stage enterprises. Challenging Times are causing trouble for even the savviest investors in these Dynamic India tech ventures.
One 97 Communications Ltd – globally known as Paytm, has a top-shelf roster of investors including Alibaba, Softbank, and Berkshire-Hathaway. The Paytm platform offers eCommerce essentials and finance products to the Indian Domestic market. It’s been considered an Indian Unicorn with its growth, founded in 2010.
Just how big is Paytm’s market? The Indian market includes about 700 M mobile users. Roughly 500 M of those users transact online. Of those users, 250 M of 346 M transactimg use the UPI, clearing systems for transactions. PhonePE and Google Pay clear more than 85% of online transactions. There were 7.3B transactions in a month (Oct 2022)
Paytm works through the Unified Payments Interface (UPI) service. The Paytm active market has consumers (80 M/month consumers 3Q2022) and merchants (4.8 M 3Q2022). Paytm has 10 million merchants signed up and is growing rapidly. In their November 2022 investor presentation Paytm stated that the total addressable market has a near-term potential of 100 million merchant entities and 500 million payment customers. Paytm had been restricted from adding more transacting UPI customers since March 2022 though this was lifted in December 2022 by the National Payments Corporation of India. There is a lot of room to grow in the current market space. Paytm is still not profitable as it grows its revenue base.
Enthusiasm for this market space can be seen in the vitality of its 200 M+ “Gen-Z” users. Gen-Z-ers account for over a third of sales on platforms like Amazon. This is in the context of 70% urban Internet uptake (340 M+) and less than 40% rural Internet uptake (350 M+) [2021 numbers].
Paytm’s story as an Indian Unicorn in a Dynamic India is under challenge as global Challenging Times see foreign investors changing their portfolio investments. Paytm went IPO in November 2021 raising USD $2.5B from a pre-IPO estimate valuation of USD $19-20B (2018 USD $10B, 2019 USD $16B). In pre-IPO fundraising rounds Paytm had raised USD$2.23B. In 4Q 2022 60.12% of shares were held by insiders, 19.61% by 50 institutions and 49.17% of equity float was held by institutions (holders of more than 50% of post-IPO float included BlackRock, Alkeon, Canada Pension Plan Investment Board, Birla Mutual Fund, Fidelity, Standard Life Aberdeen, UBS, USA hedge fund Janus Henderson, and sovereign wealth funds Abu Dhabi Investment Fund and Singapore GIC).
Berkshire-Hathaway invested USD $300M in September 2018 for 2.6% of equity at a valuation of USD$10B (17,020,000 shares). Berkshire realized a USD $16M profit on an immediate IPO sale of 1.4M shares for USD $24M, for a gain of 68% in November 2021, reducing its stake to 2.41% (15,623,529 shares). Post-IPO investment performance has been poor. Berkshire-Hathaway lost 76% of its invested value thru 4Q 2022 based on share quotes.
ANT Financial/Alibaba (31.14% of shares), and Softbank (17.45% of shares) also invested pre-IPO. 86% of shares (556M) became free to actively trade in November 2022 as the 12-month “lock-up” period after IPO for shares expired. Softbank raised cash by selling 4.5% of Paytm shares (29M) for USD$200M in November 2022. The sale was actively sought by global investors with 70% of demand by hedge funds and 30% from long-only equity investors. Global investors interested in a “bargain” are actively pursuing Paytm shares as more equity comes to the actively traded market. (Buyers included Morgan Stanley Asia (Singapore) (6,003,468 shares), Bank of America Securities (5,026,428 shares), and Societe Generale (7,085,227 shares))
The investment story for institutions and global investment funds is a difficult one for a Dynamic India. Successful pre-IPO investments and then post-IPO equity price growth is highly valued by equity investors as a way to separate highly-promoted shares from value-conserving shares. Indian enterprises seeking foreign investors (pre or post-IPO) will now have a harder time convincing the largest sovereign wealth funds, banks, and institutional investors of their value.
For enterprises in Dynamic India looking for funding and growth capital, the global Challenging Times are creating difficulties. Macroeconomic trends create higher expectations for returns on venture or risk equity financing. Raising funds is more difficult with lower revenue growth, regulatory and legal factors, and cost pressures from talent. Together this is creating a barrier to growth and marketspace expansion for enterprises in a Dynamic India. Foreign investment has also been delayed for Snapdeal and PhonePE due to concerns about equity into Dynamic India firms with the Berkshire Hathaway example.
If you’d like to read more analysis of Dynamic India, you can find many more articles at www.ekalore.com/india-business
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