10 things to watch out for in Paytm's RHP as the company heads closer to its mega IPO

Paytm, India’s leading digital ecosystem for consumers and merchants, is headed for a public market debut — a much-awaited one as it is going to be the country’s largest IPO.

On October 22, the company received approval from SEBI for its IPO and it has now filed the Red Herring Prospectus.

Here are the ten things that stand out in the company’s RHP

1. Issue size increased: Paytm is headed for a Rs18,300cr IPO — the largest market debut in India yet. It had hiked its IPO issue size from the earlier Rs16,600cr as it received increased investor demand.

2. Paytm adoption goes up: Paytm, which has the country’s largest internet ecosystem as per Redseer, has seen its user base grow in the first three months of FY22. As per the company’s RHP, Paytm’s total user base has increased to 337 million registered consumers and over 21.8 million registered merchants, as of June 30, 2021. This is reflected in transacting users too - with the monthly transacting users going up to 57.4 mn, as of September 30, 2021 (a 33% YoY increase).

3. Big jump in revenue: For the three months ended June 2021, Paytm has seen a huge uptick in its revenues driven by its payments and financial services offerings. The company’s revenue is up by 46% to Rs9,480 million in Q1FY22, from Rs6,494 million in Q1FY21. Paytm’s losses stood at Rs3,819 million for the three months ended June 2021.

4. Payment and Financial services contribute to almost 80% of the revenue: Paytm’s bet in the financial services space has taken off as the payments and financial services vertical contributes to almost 80% of the company’s revenue.  As per the company’s RHP, for Q1FY22, the company’s payments and financial services revenue alone stood at Rs6,894 million.

5. Contribution margin goes up: Paytm’s contribution margin also rose significantly to 27.4% in Q1FY22, up from 14.9% in Q1FY21.

6. Bullish on GMV: Paytm GMV has increased from Rs697 billion in the three months ended June 30, 2020 to Rs1,469 billion in the three months ended June 30, 2021. The take rate, defined as ratio of the total revenue from operations to GMV, for the first quarter of FY 2022 was 0.61%, marginally lower compared to the previous quarter as COVID-19 affected the category mix of the company’s offline merchants (particularly with respect to offline devices subscriptions and MDR revenues) and commerce merchants.

7. Lending goes big: Paytm has been betting big on its lending vertical. And as per its RHP, it has taken off and how. The company in its RHP stated that in Q2FY22 it disbursed 2.84 million loans.

8. Merchants drive big numbers: Paytm merchant transactions have increased from 3.8 billion in FY 2019 to 5.2 billion in FY 2020, and to 5.9 billion in FY 2021, and from 1.0 billion in three months ended June 30, 2020 to 2.3 billion in the three months ended June 30, 2021. Revenue from payment services to merchants went up Rs1979 million in Q1FY21 to Rs3340 million in Q1FY22 

9. On a hiring spree: Paytm has grown its employee base as at the end of june 30, 2021 the company’s total on roll employee count stood at 10,266.

10. Expansion into international markets: While Paytm continues to innovate and provide better products and services to its consumers and merchants in India, the company believes there is a large opportunity to leverage its technology infrastructure and expand to international markets. In 2017, it piloted the bill payment services in Canada and in 2018, it partnered with Softbank Corp. and Yahoo Japan Corporation to launch PayPay, a leading digital payments and financial services company in Japan. Paytm continues to explore international opportunities, especially in the developed markets, where it can either launch its merchant services, or collaborate with partners to launch consumer facing platforms.