Tuesday 11 August 2015

Paytm armed with a war chest of Rs 3,200 crore for acquisitions in ecommerce space

Alibaba-backed online e-tailer Paytm has readied a war chest of half-a-billion dollars as it scouts for acquisitions across the 'local commerce space', in line with its Chinese investor's vision that the offline-to-online business category would be the biggest segment in the ecommerce space.

"We have about $200 million in cash and the remaining $300 million could be through equity," Paytm's founder and Chairman & Managing Director Vijay Shekhar Sharma told ET. "We have also kept aside $50 million for investing in logistics and warehousing."

The $300-million equity could translate into a less than 10% stake in Paytm, based on the valuation of the latest investment by Alibaba Group Holding.

Paytm, which has applied for a payment banking permit, is expanding into the ecommerce space as it tries to focus on the offline-to-online (O2O) businesses, in part via acquisitions. "We want to get into local commerce, which we feel will become the biggest segment in the ecommerce space," Sharma said.

O2O is a fast-growing business segment which combines the benefits of online retail with brick-and-mortar transactions. For example, food-ordering or grocery-ordering apps are expected to be large segments in ecommerce, Sharma said.

The plan is in line with the global vision of Alibaba, Paytm's biggest investor, of going big on the O2O segment.

O2O helped Alibaba grow in India

Offline-to-online (O2O) services have allowed Alibaba to tap shoppers even at brick-and-mortar stores. Customers can check their apps for discounts and promotions and pay with their mobile wallets to order goods from local stores.

"O2O is a huge opportunity in India. It is a much bigger opportunity than ecommerce itself. The model allows a digital shopper to be driven offline. For instance, buy online and pick instore. Or buy online and return instore," said Ashish Jhalani, founder of retail consultancy Etailing India.

India's Internet market is expected to become the fastest-growing in the world and reach a size of $137 billion (Rs 8.7 lakh crore) by 2020, according to Morgan Stanley. Consulting firm AT Kearney said earlier this month that it expects the Indian retail market to grow to $1.3 trillion by 2020. Paytm, the consumer brand of mobile Internet company One97 Communications, had raised $200 million from Ant Financial Services, an affiliate of Alibaba, for a roughly 25% stake earlier this year.

As reported by ET, the Alibaba group could invest some $600 million more in Paytm for another 20% stake, which would subsume an outstanding tranche of the previous transaction under which Ant Financial was to have pumped in another $375 million.

The new infusion of funds could see Paytm valued at close to $3.7 billion (Rs 23,600 crore), compared with the $1-billion valuation of the previous funding round.

The latest investment in the company, once complete, will result in investors diluting their equity by about 20%, bringing the stake of founder Sharma to under 23% from 28%.

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