Chapter 1:

➢ Contents
➢ Introduction
➢ Paytm
➢ What is Paytm
➢ Definition of paytm
➢ History of paytm
➢ Summary
➢ Functions of paytm
➢ Products and services
IPO

➢ Introduction
➢ Definition
➢ How IPO works
➢ Key Takeaways
➢ IPO process and procedures
➢ Steps to an IPO
➢ Performance of an IPO
➢ Andvantages and Disadvantages of IPO

Chapter 2:
➢ What is Paytm IPO
➢ History of paytm IPO
➢ Purpose of paytm IPO
➢ Investment and Acquisitions
➢ Paytm case study
➢ Paytm News
➢ Reasons behind failure of IPO
 Chapter:-1

PAYTM

Intrdouction:

Smartphone play a vital role in this regard offering users a great platform for
communication and access to a wide range of applications. Paytm is the Indian mobile-
first financial services company that offers payments, banking, lending and
insurance to consumers and merchants through its mobile app. Paytm now offers
multiple products ranging from primary mobile recharges to buying apparels or
electronics enabling customers to get everything at one place. Paytm is growing
faster and they have over 20 million registered users as per their current data. It
was founded under the implemented idea of Paytm to serve multiple needs of the
customers, giving them a holistic experience by saving
their time and efforts.
Digital payment system includes 3 general electronic payment instruments
namely,
cash, cheque, and card. The purpose of an electronic payment is to transfer value from
payer to payee. In today’s world, we need an e-payment system that would not
only give safe payment but should also have attempted to use mobile devices as
“electronic wallet” to store payment details and account information
Paytm is India's leading financial services company that offers full-stack
payments & financial solutions to consumers, offline merchants and online platforms.
The company is on a mission to bring half a billion Indians into the mainstream
economy through payments, commerce, banking, investments, and financial services.
One97 Communications Limited that owns the brand Paytm is founded by Vijay
Shekhar Sharma and is headquartered in Noida, Uttar Pradesh. Its investors include
Softbank, Ant Financial, AGH Holdings, SAIF Partners, Berkshire Hathaway, T Rowe
Price, and Discovery Capital.
Paytm is India's leading financial services company that offers full-stack payments &
financial solutions to consumers, offline merchants and online platforms. The company
is on a mission to bring half a billion Indians into the mainstream economy through
payments, commerce, banking, investments, and financial services. One97
Communications Limited that owns the brand Paytm is founded by Vijay Shekhar
Sharma and is headquartered in Noida, Uttar Pradesh. Its investors include Softbank,
Ant Financial, SAIF AGH Holdings, Partners, Berkshire Hathaway.
Vijay Shekhar Sharma, Founder & CEO of Paytm and One97 Communications Limited
together own Paytm Payments Bank, country's largest digital bank with over 58 million
account holders. Working on its mission to bring un-served & under-served Indians
under the formal banking system, it has made banking accessible & convenient to
people across the world.
As of March 2021, it has a client base of over 33 crore who transacted on the platform
with 2.10 crore registered merchants. In its last round of funding in 2019, the company
was valued at $16 billion and it is expected that its valuation post-IPO would be in the
range of $25 billion to $30 billion making it among the valuable digital properties in
India.

Vijay Shekhar Sharma, Founder & CEO of Paytm and One97 Communications Limited
together own Paytm Payments Bank, country's largest digital bank with over 58 million
account holders. Working on its mission to bring un-served & under-served Indians
under the formal banking system, it has made banking accessible & convenient to
people across thecountry through innovative use of technology

.It's wholly-owned subsidiary 'Paytm Money' has achieved the distinction of

becoming India's biggest investment platform within its first year, and is now one of
the largest contributors of new Systematic Investment Plans (SIPs) to the Mutual Funds
industry; it has already received approvals to launch Stock Broking, Demat Services
and National Pension System (NPS) services, and strives to continue to broaden the
financial services and wealth management opportunities to the unbanked and
underserved Indians.

Paytm First Games, which is another group company (a joint venture between One97
Communications Ltd and AG Tech Holdings), has quickly become India’s go-to
gaming and stay-at-home entertainment option for millions of users across the country.
The platform caters to all types of gamers with an exhaustive array of games for
amateurs as well as esports for gaming pros.

Paytm Insurance is a wholly-owned subsidiary of One97 Communications Ltd (OCL)

and has secured a brokerage license from IRDAI. It offers insurance products to
millions of Indian consumers across four categories including two-wheeler, four-
wheeler, health and life. The company aims to simplify insurance and create a seamless,
easy to understand online journey for its customers.

Paytm is currently available in 11 Indian languages and offers online use-cases like
mobile recharges, utility bill payments, travel, movies, and events bookings as well as
in-store payments at grocery stores, fruits and vegetable shops, restaurants, parking,
tolls, pharmacies and educational institutions with the Paytm QR code] As of 2020,
Paytm is valued at US$16 billion, making it one of the highest valued fintech companies
in the world. As per the company, more than 2 crore merchants across India use their
QR code payment system to accept payments directly into their bank account.The
company also uses advertisements and paid promotional content to generate revenues

Defination of Paytm:

Paytm (a partial abbreviation for "pay through mobile") is an Indian multinational

technology company that specializes in digital payment system, e-commerce and
financial services, based in Noida.
 History of Paytm

Paytm was founded in August 2010 with an initial investment of US$2 million by its
founder Vijay Shekhar Sharma in Noida, Delhi NCR. It started off as a prepaid mobile
and DTH recharge platform, and later added data card, postpaid mobile and landline
bill payments in 2013.

In October 2011, Sapphire Ventures (fka SAP Ventures) invested $10 million in One97
Communications Ltd. By January 2014, the company had launched the Paytm Wallet,
which the Indian Railways and Uber added as a payment option. It launched into e-
commerce with online deals and bus ticketing. In 2015, it added education fees, metro
recharges, electricity, gas, and water bill payments. Paytm's registered user base grew
from 1.18 crore in August 2014 to 10.4 crore in August 2015. Its travel business crossed
$500 million in annualised GMV run rate, with 20 lakh tickets booked per month.

In March 2015, Paytm received its huge stake from Chinese e-commerce company
Alibaba Group, after Ant Financial Services Group, an Alibaba Group affiliate, took
40% stock in Paytm as part of a strategic agreement. Soon after, it received backing
from Ratan Tata, the MD of Tata Sons. In August 2016, Paytm raised funding from
Mountain Capital, one of Taiwan-based MediaTek's investment funds at a valuation of
over $5 billion. Also in 2016, it launched movies, events and amusement parks
ticketing as well as flight ticket bookings and Paytm QR. Later that year, it launched
rail bookings and gift cards.

In May 2017, Paytm received its biggest round of stake by a single investor – SoftBank,
thus bringing the company's valuation to an estimated $10 billion. In August
2018, Berkshire Hathaway invested $356 million for 3%- 4% stake in Paytm, although
Berkshire Hathaway confirmed that Warren Buffett was not involved in the transaction.

In 2017, it became India's first payment app to cross over 10 crore app downloads. The
same year, it launched Paytm Gold, a product that allowed users to buy as little as ₹1
of pure gold online. It also launched Paytm Payments Bank and ‘Inbox’, a messaging
platform with in-chat payments. By 2018, it started allowing merchants to accept
Paytm, UPI and card payments directly into their bank accounts at 0% charge.) It also
launched the ‘Paytm for Business’ app (now called Business with Paytm App), allowing
merchants to track their payments and day-to-day settlements.[30] Its merchant base to
grow to more than 70 lakh by March 2018. It launched two new wealth management
products - Paytm Gold Savings Plan and Gold Gifting for long-term savings. In January
2018, it entered into a joint venture with Alibaba Group-owned gaming company
AGTech Holdings to launch Gamepind, a mobile gaming platform. It was rebranded as
Paytm First Games in June 2019. In March 2018, Paytm Money was started with an
investment of ₹9 crore for investment and wealth management.

In March 2019, the firm launched a subscription based loyalty program called Paytm
First, and in May 2019, it partnered with Citibank to launch Paytm First credit card On
25 November 2019, Paytm raised $1 billion in a funding round led by US asset manager
T Rowe Price along with existing investors Ant Financial and SoftBank Vision
Fund.[41] In July 2020, Tata Starbucks partnered with Paytm allowing its customers to
order food online during the COVID-19 pandemic.

In July 2021, One97 Communications filed a draft red herring prospectus with
the Securities and Exchange Board of India to launch its initial public offering (IPO). It
launched its IPO in November 2021, raising ₹18,300 crore (US$2.4 billion) at a
valuation of US$20 billion. It was the largest ever IPO in India. The shares began
trading on 18 November 2021, opening at ₹1,950 on the NSE, 9.3% below the upper
band of the IPO price range, and closed down more than 27% at ₹1,560, making it the
biggest drop on a listing day in Indian IPO history.

In December 2021, Paytm launched Paytm Wealth Academy.

 Summary of Paytm

Industry • Financial technology

• E-commerce

Founded August 2010; 11 years ago in Noida, Uttar Pradesh, India

Founder Vijay Shekhar Sharma

Headquarters B-121, Sector 5,

Noida, Uttar Pradesh
,

Areas served• India

• Canada
• Japan

Key people • Vijay Shekhar Sharma (CEO)

• Amit Nayyar (President)

Products • Paytm Mall

• Paytm Payments Bank
• Paytm Money
• PayPay
• Gamepind
• Paytm Smart Retail

Services • Payment system

• Mobile payments
• Online shopping

Owners • Vijay Shekhar Sharma (14.67%)[2]

• Ant Group (29.71%)
• SoftBank Vision Fund (19.63%)
• SAIF Partners (18.56%)
 • Alibaba Group (7.18%)
• Berkshire Hathaway (2.76%)
• Sharma holding company (7.49%)
•

Parent One97 Comm

Website paytm.com

What is the main function of Paytm?

Paytm provides a platform to Merchants (Sellers, Shopkeepers, Stores, etc.) to accept

money through multiple instruments like UPI, Net banking, Credit card, Debit card and
Paytm wallet. More than 7 million merchants use Paytm to accept money from their
customers at their shops or on their apps / websites.

Products of Paytm:

✓ Paytm Mall Paytm

✓ Payments Bank
✓ Paytm Money
✓ PayPay Gamepind
✓ Paytm Smart Retail

1. Paytm Mall

In February 2017, Paytm launched its Paytm Mall app, which allows consumers to shop
from 1.4 lakh registered sellers. Paytm Mall is a B2C model inspired by China's largest
B2C retail platform TMall. Sellers have to pass through Paytm-certified warehouses
and channels to ensure consumer trust. Paytm Mall has set up 17 fulfillment centres
across India and partnered with more than 40 couriers. Paytm Mall raised $200 million
from Alibaba Group and SAIF Partners in March 2018. In May 2018, it posted a loss
of approximately ₹1,800 crore with a revenue of ₹774 crore for financial year 2018.
The market share of Paytm Mall dropped to 3 percent in 2018 from 5.6 percent in 2017.
 2. Paytm Payments Bank

Paytm Payments Bank (PPBL) is an Indian payments bank, founded in 2015 and
headquartered in Noida. In 2015, it received the license to run a payments bank from
the Reserve Bank of India. It was launched in November 2017.

As of August 2020, Vijay Shekhar Sharma holds 51 per cent in the entity with One97
Communications Limited holding 39 per cent and the remaining 10 per cent of share is
held by a joint venture between Vijay Shekhar Sharma and One97 Communications. It
has over 64 million account holders as of April 2021.

3. Pay Pay:

PayPay Corporation is a Japanese company that develops electronic

payment services. It was established in 2018 as a joint venture between the SoftBank
Group and Yahoo Japan through Z Holdings, their holding company. With 38 million
users, PayPay is the largest Japanese mobile payment app. In October 2018, it began a
QR code and bar code-based payment service, which was developed in collaboration
with Paytm, an India-based payment service company.
From a smartphone app, users link their bank account and add money to their PayPay
account. At the point of sale, the user makes a payment either by scanning a QR code,
or by having the clerk scan a bar code on the smartphone.[4][5]
Services of Paytm

1. Mobile payment

Mobile payment (also referred to as mobile money, mobile money transfer, and mobile
wallet) generally refer to payment services operated under financial regulation and
performed from or via a mobile device. Instead of paying with cash, cheque, or credit
cards, a consumer can use a mobile to pay for a wide range of services and digital or
hard goods. Although the concept of using non-coin-based currency systems has a long
history, it is only in the 21st century that the technology to support such systems has
become widely available.

Mobile payment is being adopted all over the world in different ways. The first patent
exclusively defined "Mobile Payment System" was filed in 2000.

In developing countries mobile payment solutions have been deployed as a means of

extending financial services to the community known as the "unbanked" or
"underbanked", which is estimated to be as much as 50% of the world's adult
population, according to Financial Access' 2009 Report "Half the World is Unbanked".

Mobile payments are becoming a key instrument for payment service providers (PSPs)
and other market participants, in order to achieve new growth opportunities, according
to the European Payments Council (EPC). The EPC states that "new technology
solutions provide a direct improvement to the operations efficiency, ultimately resulting
in cost savings and in an increase in business volume".

2. Payment system:

A payment system is any system used to settle financial transactions through the
transfer of monetary value. This includes the institutions, instruments, people, rules,
procedures, standards, and technologies that make its exchange possible. A common
type of payment system, called an operational network, links bank accounts and
provides for monetary exchange using bank deposits. Some payment systems also
include credit mechanisms, which are essentially a different aspect of payment.

Payment systems are used in lieu of tendering cash in domestic and international
transactions. This consists of a major service provided by banks and other financial
institutions. Traditional payment systems include negotiable instruments such
as drafts (e.g., cheques) and documentary credits such as letters of credit. With the
advent of computers and electronic communications, many alternative electronic
payment systems have emerged. The term electronic payment refers to a payment made
from one bank account to another using electronic methods and forgoing the direct
intervention of bank employees.

3. Online shopping

Online shopping is a form of electronic commerce which allows consumers to directly

buy goods or services from a seller over the Internet using a web browser or a mobile
app. Consumers find a product of interest by visiting the website of the retailer directly
or by searching among alternative vendors using a shopping search engine, which
displays the same product's availability and pricing at different e-retailers. As of 2020,
customers can shop online using a range of different computers and devices,
including desktop computers, laptops, tablet computers and smartphones.

An online shop evokes the physical analogy of buying products or services at a

regular "bricks-and-mortar" retailer or shopping center; the process is called business-
to-consumer (B2C) online shopping. When an online store is set up to enable businesses
to buy from another businesses, the process is called business-to-business (B2B) online
shopping. A typical online store enables the customer to browse the firm's range of
products and services, view photos or images of the products, along with information
about the product specifications, features and prices.

Online stores usually enable shoppers to use "search" features to find specific models,
brands or items. Online customers must have access to the Internet and a valid method
of payment in order to complete a transaction, such as a credit card, an Interac-
enabled debit card, or a service such as PayPal. For physical products (e.g., paperback
books or clothes), the e-tailer ships the products to the customer; for digital products,
such as digital audio files of songs or software, the e-tailer usually sends the file to the
customer over the Internet. The largest of these online retailing corporations
are Alibaba, Amazon.com, and eBay.
 IPO

Indroduction:

An initial public offering (IPO) or stock launch is a public offering in which shares of
a company are sold to institutional investors and usually also retail (individual)
investors. An IPO is typically underwritten by one or more investment banks, who also
arrange for the shares to be listed on one or more stock exchanges. Through this process,
colloquially known as floating, or going public, a privately held company is
transformed into a public company. Initial public offerings can be used to raise new
equity capital for companies, to monetize the investments of private shareholders such
as company founders or private equity investors, and to enable easy trading of existing
holdings or future capital raising by becoming publicly traded.

After the IPO, shares are traded freely in the open market at what is known as the free
float. Stock exchanges stipulate a minimum free float both in absolute terms (the total
value as determined by the share price multiplied by the number of shares sold to the
public) and as a proportion of the total share capital (i.e., the number of shares sold to
the public divided by the total shares outstanding). Although IPO offers many benefits,
there are also significant costs involved, chiefly those associated with the process such
as banking and legal fees, and the ongoing requirement to disclose important and
sometimes sensitive information.

Details of the proposed offering are disclosed to potential purchasers in the form of a
lengthy document known as a prospectus. Most companies undertake an IPO with the
assistance of an investment banking firm acting in the capacity of an underwriter.
Underwriters provide several services, including help with correctly assessing the value
of shares (share price) and establishing a public market for shares (initial sale).

The transition from a private to a public company can be an important time for private
investors to fully realize gains from their investment as it typically includes a share
premium for current private investors. Meanwhile, it also allows public investors to
participate in the offering
Definition of IPO:

An initial public offering (IPO) refers to the process of offering shares of a private
corporation to the public in a new stock issuance. An IPO allows a company to raise
capital from public investors.

How an Initial Public Offering (IPO) Works

Before an IPO, a company is considered private. As a pre-IPO private company, the
business has grown with a relatively small number of shareholders including early
investors like the founders, family, and friends along with professional investors such
as venture capitalists or angel investors.

An IPO is a big step for a company as it provides the company with access to raising
a lot of money. This gives the company a greater ability to grow and expand. The
increased transparency and share listing credibility can also be a factor in helping it
obtain better terms when seeking borrowed funds as well.

When a company reaches a stage in its growth process where it believes it is mature
enough for the rigors of SEC regulations along with the benefits and responsibilities
to public shareholders, it will begin to advertise its interest in going public.

Typically, this stage of growth will occur when a company has reached a private
valuation of approximately $1 billion, also known as unicorn status. However, private
companies at various valuations with strong fundamentals and proven profitability
potential can also qualify for an IPO, depending on the market competition and their
ability to meet listing requirements.

IPO shares of a company are priced through underwriting due diligence. When a
company goes public, the previously owned private share ownership converts to public
ownership, and the existing private shareholders’ shares become worth the public
trading price. Share underwriting can also include special provisions for private to
public share ownership.

Meanwhile, the public market opens up a huge opportunity for millions of investors to
buy shares in the company and contribute capital to a company’s shareholders' equity.
The public consists of any individual or institutional investor who is interested in
investing in the company.

Overall, the number of shares the company sells and the price for which shares sell are
the generating factors for the company’s new shareholders' equity value. Shareholders'
equity still represents shares owned by investors when it is both private and public, but
with an IPO the shareholders' equity increases significantly with cash from the primary
issuance.
.

KEY TAKEAWAYS

• An initial public offering (IPO) refers to the process of offering shares of

a private corporation to the public in a new stock issuance.
• Companies must meet requirements by exchanges and the Securities and
Exchange Commission (SEC) to hold an IPO.
• IPOs provide companies with an opportunity to obtain capital by offering
shares through the primary market.
• Companies hire investment banks to market, gauge demand, set the IPO price
and date, and more.
• An IPO can be seen as an exit strategy for the company’s founders and early
investors, realizing the full profit from their private investment.

IPO Procedures

IPO procedures are governed by different laws in different countries. In the United
States, IPOs are regulated by the United States Securities and Exchange Commission
under the Securities Act of 1933.[10] In the United Kingdom, the UK Listing Authority
reviews and approves prospectuses and operates the listing regime.[11]

Planning is crucial to a successful IPO. One book suggests the following seven planning
steps:

1. develop impressive management and professional team

2. grow the company's business with an eye to the public marketplace

3. obtain audited financial statements using IPO-accepted accounting principles

4. clean up the company's act

5. establish antitakeover defenses

6. develop good corporate governance

7. create insider bail-out opportunities and take advantage of IPO windows

The IPO Process

An IPO comprehensively consists of two parts. The first is the pre-marketing phase of
the offering, while the second is the initial public offering itself. When a company is
interested in an IPO, it will advertise to underwriters by soliciting private bids or it can
also make a public statement to generate interest.

The underwriters lead the IPO process and are chosen by the company. A company
may choose one or several underwriters to manage different parts of the IPO process
collaboratively. The underwriters are involved in every aspect of the IPO due
diligence, document preparation, filing, marketing, and issuance.

Steps to an IPO
1. Proposals

Underwriters present proposals and valuations discussing their services, the best type
of security to issue, offering price, amount of shares, and estimated time frame for the
market offering.

2. Underwriter

The company chooses its underwriters and formally agrees to underwrite terms
through an underwriting agreement.

3. Team

IPO teams are formed comprising underwriters, lawyers, certified public

accountants (CPAs), and Securities and Exchange Commission (SEC) experts.
4. Documentation

Information regarding the company is compiled for required IPO documentation. The
S-1 Registration Statement is the primary IPO filing document. It has two parts—the
prospectus and the privately held filing information. 1

The S-1 includes preliminary information about the expected date of the filing. 2 It will
be revised often throughout the pre-IPO process. The included prospectus is also
revised continuously.

5. Marketing & Updates

Marketing materials are created for pre-marketing of the new stock issuance.
Underwriters and executives market the share issuance to estimate demand and
establish a final offering price. Underwriters can make revisions to their financial
analysis throughout the marketing process. This can include changing the IPO price or
issuance date as they see fit.

Companies take the necessary steps to meet specific public share offering
requirements. Companies must adhere to both exchange listing requirements and SEC
requirements for public companies.

6. Board & Processes

Form a board of directors and ensure processes for reporting auditable financial and
accounting information every quarter.

7. Shares Issued

The company issues its shares on an IPO date. Capital from the primary issuance to
shareholders is received as cash and recorded as stockholders' equity on the balance
sheet. Subsequently, the balance sheet share value becomes dependent on the
company’s stockholders' equity per share valuation comprehensively.

8. Post IPO
Some post-IPO provisions may be instituted. Underwriters may have a specified time
frame to buy an additional amount of shares after the initial public offering (IPO) date.
Meanwhile, certain investors may be subject to quiet periods.

Investing in an IPO
When a company decides to raise money via an IPO it is only after careful
consideration and analysis that this particular exit strategy will maximize the returns
of early investors and raise the most capital for the business. Therefore, when the IPO
decision is reached, the prospects for future growth are likely to be high, and many
public investors will line up to get their hands on some shares for the first time. IPOs
are usually discounted to ensure sales, which makes them even more attractive,
especially when they generate a lot of buyers from the primary issuance.

Initially, the price of the IPO is usually set by the underwriters through their pre-
marketing process. At its core, the IPO price is based on the valuation of the company
using fundamental techniques. The most common technique used is discounted cash
flow, which is the net present value of the company’s expected future cash flows.

Underwriters and interested investors look at this value on a per-share basis. Other
methods that may be used for setting the price include equity value, enterprise value,
comparable firm adjustments, and more. The underwriters do factor in demand but
they also typically discount the price to ensure success on the IPO day.

It can be quite hard to analyze the fundamentals and technicals of an IPO issuance.
Investors will watch news headlines but the main source for information should be
the prospectus, which is available as soon as the company files its S-1
Registration.3 The prospectus provides a lot of useful information. Investors should
pay special attention to the management team and their commentary as well as the
quality of the underwriters and the specifics of the deal. Successful IPOs will typically
be supported by big investment banks that can promote a new issue well.

Overall, the road to an IPO is a very long one. As such, public investors building
interest can follow developing headlines and other information along the way to help
supplement their assessment of the best and potential offering price.
The pre-marketing process typically includes demand from large private accredited
investors and institutional investors, which heavily influence the IPO’s trading on its
opening day. Investors in the public don’t become involved until the final offering day.
All investors can participate but individual investors specifically must have trading
access in place. The most common way for an individual investor to get shares is to
have an account with a brokerage platform that itself has received an allocation and
wishes to share it with its clients.

Performance of an IPO
Several factors may affect the return from an IPO which is often closely watched by
investors. Some IPOs may be overly-hyped by investment banks which can lead to
initial losses. However, the majority of IPOs are known for gaining in short-term
trading as they become introduced to the public. There are a few key considerations
for IPO performance.

What Is the Purpose of an Initial Public Offering (IPO)?

An IPO is essentially a fundraising method used by large companies, in which the
company sells its shares to the public for the first time. Following an IPO, the
company’s shares are traded on a stock exchange. Some of the main motivations for
undertaking an IPO include: raising capital from the sale of the shares, providing
liquidity to company founders and early investors, and taking advantage of a higher
valuation.

Can Anybody Invest in an IPO?

Oftentimes, there will be more demand than supply for a new IPO. For this reason,
there is no guarantee that all investors interested in an IPO will be able to purchase
shares. Those interested in participating in an IPO may be able to do so through their
brokerage firm, although access to an IPO can sometimes be limited to a firm’s larger
clients. Another option is to invest through a mutual fund or another investment vehicle
that focuses on IPOs.

Is it Good to Buy IPO Shares?

IPOs tend to garner a lot of media attention, some of which is deliberately cultivated
by the company going public. Generally speaking, IPOs are popular among investors
because they tend to produce volatile price movements on the day of the IPO and
shortly thereafter. This can occasionally produce large gains, although it can also
produce large losses. Ultimately, investors should judge each IPO according to the
prospectus of the company going public, as well as their financial circumstances and
risk tolerance.
 Advantages and Disadvantages of an IPO

The primary objective of an IPO is to raise capital for a business. It can also come with
other advantages, but also disadvantages.

Advantages
One of the key advantages is that the company gets access to investment from the
entire investing public to raise capital. This facilitates easier acquisition deals (share
conversions) and increases the company’s exposure, prestige, and public image, which
can help the company’s sales and profits.

Increased transparency that comes with required quarterly reporting can usually help
a company receive more favorable credit borrowing terms than a private company.

• Enlarging and diversifying equity base

• Enabling cheaper access to capital
• Increasing exposure, prestige, and public image
• Attracting and retaining better management and employees through liquid equity
participation
• Facilitating acquisitions (potentially in return for shares of stock)
• Creating multiple financing opportunities: equity, convertible debt, cheaper bank
loans, etc.

Disadvantages
Companies may confront several disadvantages to going public and potentially choose
alternative strategies. Some of the major disadvantages include the fact that IPOs are
expensive, and the costs of maintaining a public company are ongoing and usually
unrelated to the other costs of doing business.

Fluctuations in a company's share price can be a distraction for management

which may be compensated and evaluated based on stock performance rather than real
financial results. As well, the company becomes required to disclose financial,
accounting, tax, and other business information. During these disclosures, it may have
to publicly reveal secrets and business methods that could help competitors.
Rigid leadership and governance by the board of directors can make it more difficult
to retain good managers willing to take risks. Remaining private is always an option.
Instead of going public, companies may also solicit bids for a buyout. Additionally,
there can be some alternatives that companies may explore.

• Significant legal, accounting, and marketing costs, many of which are ongoing
• Requirement to disclose financial and business information
• Meaningful time, effort, and attention required of management
• Risk that required funding will not be raised
• Public dissemination of information that may be useful to competitors, suppliers
and customers.
• Loss of control and stronger agency problems due to new shareholders
• Increased risk of litigation, including private securities class actions and
shareholder derivative actions
PAYTM IPO

Paytm, formally known as One97 Communications Ltd., has launched its initial public
offering (IPO) for subscription today, in what is India’s biggest ever initial share sale
since Coal India's in 2010.

Paytm’s parent company, One 97 Communications Ltd, raised a record IPO sum for
India, but its disastrous trading debut sparked criticism against the company.
"IPOs have been running hot in India, so a correction in broader markets will hurt these
stocks the most," Deepak Shenoy, founder and chief executive of Capitalmind, told
Reuters.
Shenoy said that people will be reluctant to come in when conditions are not favourable,
raising doubts about whether the rush for new listings was slowly fading.
“Investors should wait a bit for the stock to settle down. There is too much volatility
and pessimism in the stock,” Mohit Nigam, a fund manager with Hem Securities Ltd,
told Bloomberg.
Paytm released financial details for the month of October, which includes the critical
period ahead of the Diwali holiday, over the weekend. Gross merchandise value rose
131% to ₹832 billion for the month and loan disbursals increased more than 400 per
cent to ₹6.27 billion, the company said.
Paytm stumble may chill India’s stock-market boom, which had ranked among the
world’s most frenzied.
Sharma has defended the company’s prospects and rallied Paytm employees during a
four-hour town hall and encouraged them to look past the first-day drop, according to
employees who participated.

In July 2021, One97 Communications filed a draft red herring prospectus with the
Securities and Exchange Board of India to launch its initial public offering
(IPO).[43][44] It launched its IPO in November 2021, raising ₹18,300 crore (US$2.4
billion) at a valuation of US$20 billion.[45] It was the largest ever IPO in India.[46]
The shares began trading on 18 November 2021, opening at ₹1,950 on the NSE, 9.3%
below the upper band of the IPO price range, and closed down more than.
History of Paytm IPO

One97 Communications Limited was founded in 2000 by Vijay Shekhar

Sharma in New Delhi. The company is headquartered in Noida, India. It
launched Paytm in 2009 as a digital payments platform to facilitate cashless
payments.It owns various businesses and subsidiaries – Paytm Payments Bank, Paytm
Payments Gateway, Paytm Payout, Paytm Money, Paytm Insider, Paytm Insurance,
Paytm Postpaid, Paytm for Business, Paytm Credit Cards, and Paytm First Games.

Funding For Paytm IPO

In October 2011, One97 Communications received funding of $10 million from SAP
Ventures. In January 2015, Alibaba Group and its affiliate Ant Group jointly invested
about $575 million for a 30% stake in the company. In March 2015, Ratan Tata made
a personal investment in One97 Communications's Paytm and joined as an adviser of
the company. In December 2019, it raised $660 million in a seed funding round from
investors, including Alibaba's Alipay, funds managed by T Rowe Price, SoftBank's
SVF Panther and others. It received funding of $60 million from MediaTek's
investment funds Mountain Capital, which made the company's valuation at $4.8 billion
in August 2016.
In May 2017, the company raised $1.4 billion from Japan's SoftBank Group, which
made its valuation jumped to over $8 billion. In August 2018, Warren
Buffett's Berkshire Hathaway bought a 3%- 4% stake in the company with an
investment of $356 million. In November 2019, the company secured $1 billion in a
Series G funding led by T Rowe Price and existing investors Ant Financial
and SoftBank Vision Fund. Discovery Capital also participated in the round. In
December 2019, One97 Communications raised over $ 660 million from investors,
including Alibaba Group's Alipay and SoftBank's SVF Panther (Cayman).

Purpose of the IPO:

Paytm said it will use the IPO proceeds for growing and strengthening the company,
including through acquisition and retention of consumers and merchants and providing
them with greater access to technology and financial service

Investments and acquisitions

In 2013, Paytm acquired Plustxt for under $2 million. Plustxt was started by IT
graduates Pratyush Prasanna, Parag Arora, Lokesh Chauhan and Lohit V that allowed
fast text messaging in any Indian Language.

In 2015, it invested $5 million in auto-rickshaw aggregator and hyperlocal delivery firm

Jugnoo. T It also acquired Delhi-based consumer behaviour prediction platform
Shifuand local services startup Near.in. In 2016, it invested in logistics startups
LogiNext and XpressBees. In April 2017, it invested in healthcare startup
QorQL[ which uses artificial intelligence (AI) and big data to assist medical care,. In
July 2017, it acquired a majority stake in online ticketing and events platform Insider.in,
backed by event management company Only Much Louder (OML) and mobile loyalty
startup MobiQuest. The same year, it acquired Little.

In June 2018, the company acquired the startup Cube26.[In January 2019, it acquired
the hotel booking platform NightStay.

Paytm board has approved a resolution which would allot 47,042 equity shares to 60
employees under its ESOP Scheme 2008 and ESOP Scheme 2019.

In October 2021, Paytm acquired digital lending company CreditMate.

In December 2012, the company acquired MobiVite, a mobile
marketing platform[20] followed by the acquisition of Plustx, a cross-messaging
platform in August 2013

Nearbuy.com

In 2017, Paytm acquired nearbuy.com, an India-based, hyper-local eCommerce

company. It was incorporated in May 2010 as Nearby under Groupon India Private
Limited, and operated as a subsidiary of Groupon Inc until August 2015. That year, it
underwent a buyout and rebranded as nearbuy.com after successfully raising ₹125
crore (US$17 million) in funding from Sequoia India, an arm of Sequoia
Capital. Groupon became a minority stakeholder in nearbuy.com as a result of the
buyout.

In December 2017, nearbuy.com merged with Little App, while raising fresh capital
from Paytm. As part of the deal, the competitor companies would merge under the
leadership of co-founder and CEO Ankur Warikoo, while Paytm would acquire
majority ownership of the merged entitiy. As of May 2018, nearbuy.com operates in 33
cities in India.
 Paytm Case Study: The Journey of India's Leading FinTech
Company

Paytm is India's one of the biggest fintech startups founded in August 2010 by Vijay
Shekhar Sharma. The startup offers versatile instalments, e-wallet, and business stages.
Even though it began as an energizing stage in 2010, Paytm has changed its plan of
action to become a commercial centre and a virtual bank model. It is likewise one of
the pioneers of the cashback plan of action.
Paytm has changed itself into an Indian mammoth managing versatile instalments,
banking administrations, commercial centre, Paytm gold, energize and charge
installments, Paytm wallet and many other provisions which serve around 100 million
enlisted clients.
The areas served by Paytm are India, Canada, and Japan, it is also accessible in 11
Indian dialects. It offers online use-cases as versatile energizes, service charge
installments, travel, motion pictures, and occasions appointments. In-store instalments
at markets, leafy foods shops, cafés, stopping, tolls, drug stores and instructive
establishments can be accessed through the Paytm QR code.
One 97 Communications, the parent company of Paytm, is all set to raise its capital
target of over ₹16,600 crores ($2.2 billion) through an IPO that it had filed earlier in
July 2021. Paytm is seeking to raise $25 billion to $30 billion valuation post this IPO.
According to the organization, more than 7 million traders crosswise over India utilize
its QR code to acknowledge instalments straightforwardly into their bank account. The
organization uses commercials and pays a special substance to produce income. Let's
look at this detailed case study on Paytm to know more about its growth and future
plans.

Paytm News
1st November 2021 - The much-awaited Paytm IPO was launched with a price band of
₹ ₹2,080-2,150 per share.
13th October 2021 - Paytm users can now store Aadhaar, driving license, vehicle RC,
insurance via Digilocker. Digilocker Mini App on Paytm offers access to these
documents to users even when they're offline or in a low connectivity zone.
8th October 2021 - Paytm is looking forward to bringing in sovereign wealth funds as
anchor investors in the company's pre-IPO placement.
5th October 2021 - Switzerland-based insurance giant, Swiss RE might join Paytm's
insurance business' board.
3rd October 2021 - Paytm has acquired 100% stakes in CreditMate, a Mumbai-based
digital lending startup.
This story is from November 8, 2021
The paytm IPO
Opens Digital payment platform Paytm’s three-day IPO has opened today and the
company is looking to raise $2.46 billion to become the biggest IPO in India.
Paytm’s IPO will be the fourth by an Indian tech startup and the third since October 28,
when beauty products retailer Nykaa launched its IPO. This was followed by a public
offering by Policybazaar's public offering from November 1 to 3.

Price band:
The price band of the Rs 18,300 crore share sale, which concludes on November 10,
has been fixed at Rs 2,080-2,150 per share. Paytm parent One97 Communications has
already raised Rs 8,235 crore from anchor investors ahead of its share sale. The
allotment will be finalised by November 15 and listing is expected on November 18.
Eligible investors will receive shares in their demat accounts by November 17.
According to Axis Capital, the post issue market cap of the company will be around Rs
135,111 – 139,379 crore.

Allotment:
The minimum bid lot size has been fixed as 6 equity shares and in multiples of 6 shares
thereafter. So, retail investors can invest a minimum of Rs 12,900 for a single lot and
their maximum investment would be Rs 1,93,500 for 15 lots. Up to 75 percent of the
offer is reserved for qualified institutional buyers, 15 percent for non-institutional
investors, and the remaining 10 percent for retail investors.
Issue size: There will be fresh issuance of equity shares worth Rs 8,300 crore and Rs
10,000 crore from an offer for sale (OFS) by existing shareholders. The offer will be
the biggest in the country after Coal India's IPO in 2010, which garnered Rs 15,200
crore. Last week, Paytm raised Rs 8,235 crore from anchor investors. Global investors
like BlackRock, Vanguard, and Fidelity are among the large anchor investors. Paytm
has now raised 45% of its total capital it needs to raise through the IPO.
What are anchor investors? They are large investors who are allotted shares at a fixed
price ahead of a public offering. Paytm's anchor investors include sovereign wealth
funds and financial investors such as Singapore's GIC, Canada’s CPPIB, BlackRock,
Alkeon Capital and Abu Dhabi Investment Authority.
BlackRock, CPPIB and GIC are among the top investors in Paytm’s anchor round. They
have together invested more than Rs 2,516 crore. US hedge fund Janus Henderson,
Fidelity, Standard Life Aberdeen and UBS also picked up shares in the anchor round,
which was oversubscribed by around 10 times.

Company financials:
Paytm's operational revenue during the June quarter of financial year 2022 jumped
more than 61% to Rs 890 crore from Rs 551 crore in the same period a year ago while
losses widened to Rs 382 crore from Rs 284 crore in the same period a year ago. Paytm's
financial services contribute 77% of its total revenue.

Offer details:
Founder Vijay Shekhar Sharma will sell Rs 402.65 crore worth of shares through OFS.
Among investors, Antfin (Netherlands) Holding B.V. will sell up to Rs 4,704.43 crore
worth of shares, Alibaba.com Singapore E-Commerce will offload Rs 784.82 crore of
shares, SVF Panther (Cayman) Rs 1,689.03 crore, and BH International Holdings will
sell Rs 301.77 crore worth of shares via OFS.
Paytm IPO: Case of Deliberate Overpricing

A higher valuation could have been achieved but we decided to price it at a level where
everyone makes money,” said Madhur Deora, group chief financial officer at Paytm,
after the public issue. The stock was issued at Rs2,150, got listed at Rs1,950, hit a high
of Rs1,955 and then went into a relentless decline. Closing at Rs944.50, the stock has
more than halved. Mr Deora’s comment of pricing at a level where 'everyone makes
money', has turned out to be a joke. On 4th February, Paytm announced its December
quarter results. It reported a loss of Rs780 crore against a loss of Rs520 crore for the
same period of the previous year. Paytm has turned out to be the poster boy of
overvaluation, with the company, investors and even the regulator now being asked to
be accountable for the massive losses inflicted on shareholders.

There is always a variance between the price of the stock, which the investee company
seeks, and its market value. Hence, the performance of investee companies is constantly
analysed in order to identify undervalued stocks for buying and overvalued stocks for
selling. Apart from this, technical analysts seek to time their buy-sell decisions.
Securities evaluation has been a fertile ground for research from the days of Benjamin
Graham in the 1920s, followed by John Burr Williams’s Theory of Investment
Value, followed by the pathbreaking Markowitz Portfolio Theory in 1952, Capital
Asset Pricing Model (CAPM) in 1960s and Three Factor Fama French model (1993),
etc. The CAPM model is now universally employed for estimating expected return on
equity. How does all of this apply to the Paytm valuation? Was the stock significantly
overvalued at the issue price?

Estimate of the earning per share (EPS) divided by the expected return on equity gives
the share price based on no-growth scenario. The difference between the market price
of the share and the price based on no-growth scenario represents present value of
growth opportunities (PVGO). No wonder, the well-managed growth-oriented
companies have high PVGOs reflected by high P/E (price-to-earnings) ratios. For
example, the trailing P/E ratio of Infosys Limited and TCS Limited remain high at 34+,
whereas commodity companies such as Tata Steel and JSW Steel are a faction of that.
The PVGO is discernible for well-established listed companies but poses a challenge
for start-ups such as One 97 Communications Limited, particularly before they break
even.

One 97 Communications Limited, better known by the brand name Paytm, made initial
public offer (IPO) of Rs18,300 crore in November 2021. A major part of the issue, i.e.,
Rs10,000 crore was offer for sale from the existing shareholders who used the IPO to
harvest their returns. Before the IPO, the company split the face value of the shares
from Rs10 each to Rs1 each. So, IPO price of the share at Rs2,150/share was equivalent
to Rs21,500/share of the face value of Rs10/each. The size of the IPO and pricing for a
start-up with history of losses was path-breaking.
The selling shareholders who received Rs10,000 crore included promoter Vijay
Shekhar Sharma who diluted his paltry pre-IPO shareholding from 9.1% to 6%. While
the selling shareholders are having a ball, new investors have suffered a whopping value
loss of Rs10,073 crore with a 56% fall in share price in just three months since its listing
on 18 November 2021. Is it due to overpricing?

Paytm’s business segments include payment services, financial services, and commerce
and cloud services. Its large consumer / merchant base of approximately 333mn
(million) / 21mn, aided by large payments platform handled gross merchandise value
(GMV) of Rs4.03 trillion in FY20-21 clocking a two-year compounded annual growth
rate (CAGR) of 33%. This resulted in a two-year CAGR of 11.5% in its revenue from
payment and financial services. However, the revenue from commerce and cloud
services clocked a negative two-year CAGR of 32.8%. Thankfully, aided by a two-year
compound average operating cost reduction of 22.4%, the company had the lowest
negative earnings before interest, taxes, depreciation and amortisation (EBITDA)
during FY20-21.

The key to Paytm’s profitability is substantial increase in revenue and reduction in

operating costs. However, while revenue has grown, the downward trend in operating
cost has been reversed in second quarter of FY-21-22. It is unclear how and when the
proposed strengthening of Paytm's ecosystem and acquisition / retention of consumers,
etc, with the IPO proceeds will help the company to induce efficiency, turnaround and
catalyse return on equity.
The digital payment ecosystem powered by India’s robust Unified Payments Interface
(UPI) is expected to continue to hold the sway due to the economics, security and
efficiency it provides. UPI, which had started with a pilot launch in April 2016 has
emerged a preferred mode of digital transactions (see the figure below).

On the UPI platform, Phone Pe and Google Pay have marched ahead of Paytm with
market shares in value, of 46.6% and 37.8%, respectively, against 8.7% of Paytm. With
almost 20 UPI third- party apps including Phone Pe, Google Pay, Amazon Pay and
WhatsApp Pay, and those of large finance companies and banks, the competition is set
to intensify.

Share Value
The offer for sale of shares from 21 shareholders, including eight global PE funds /
investors and the solitary founding promoter aggregated about 46.51mn shares (7.63%
of the shares pre-IPO outstanding) at a price of Rs2,150/shares. Average acquisition
cost by these investors was Rs816.90/share with a maximum of Rs1833.30/share and
minimum of Rs. 0.50/share belonging to the founding promoter. The share prices paid
by the global PE funds / investors must have been preceded by intense negotiations as
usual. Such investors often use the formula:
The fund / investor invests “I” for an investment horizon of “N” years during which it
seeks a return of “R” depending upon the business risk profile. Hence, the value of the
investment must swell to I*(1+R)N at the end of investment horizon. The value
I*(1+R)N divided by the estimated market capitalisation i.e., PAT * PE Ratio
constitutes the fund’s ownership (“S”) part in the investee company for investment “I”.

Thus, if value of “S” works out to say 30%, share pricing must ensure that the investor
/ fund with investment of “I” has a 30% ownership in the investee company. Estimation
of market value of equity for an unlisted firm entails discounted cash-flow modelling
which is finalised after intense negotiations. Often, the initial investment is in
convertible debt and eventual conversion into equity depends on the actual performance
which is constantly monitored by the investor.

Thus, the pricing of shares placed by Paytm with the several PE funds / investors over
the past few years must have been based on the DCF model. Yet the RHP’s (red herring
prospectus) basis for the offer price was perfunctory, and carried no basis whatsoever
and seems to have been drafted to avoid inconvenient questions. Surprisingly, the
mandarins at the Securities and Exchange Board of India (SEBI) accepted polite
nothings in DRHP (draft RHP) without a murmur.

Paytm’s outstanding equity shares of 648,273,659 had IPO value of Rs1,393.79 billion
(US$18.58 billion) on November 8, 2021. At close on the listing date, its price was
Rs1,560.80 and, currently, the share price is Rs944.50 reflecting loss to the investors of
Rs10,072 crore (56%) in just three months.
With low trading volumes of just 0.02% of the shares outstanding and deliverable
quantity of around 30%, the share price may see sawtooth fall, if the company fails to
break even and demonstrate EPS (earnings per share) growth that can justify even the
current depleted value, soon.

Though promising, the digital payment landscape has not evolved profitability
parameters which typify this industry. Assuming that this turns out to be a growth-
oriented industry which justifies P/E ratio of, say, 25, based on (i) EBITDA margin of
say 15% (from the currently negative 35%), (ii) 5-year growth phase till FY-26-27, a
steady state phase thereafter with a robust perpetual growth of 10% per year, weighted
average cost of capital of 20% (assuming marginal debt levels), clocking a P/E ratio
(based on issue price) of 25 would require five-year CAGR of over 25% in revenue.

Growth in revenue is evident in first half of FY21-22. But the operating cost reduction
which is crucial for positive EBITDA is not evident. To correct this anomaly,
substantial reduction in payment processing charges and other expenses is a must.
Whether this will happen in FY22-23 will be clear in first quarter of FY22-23. Whether
Paytm manages to reduce the payment processing charges, 49% of which were remitted
to related party is to be seen. If such reduction with a related party is a zero-sum game
the wait for positive EBITDA could turn longer, and the market will discover the true
value of Paytm share by first quarter of FY22-23.

It is obvious that the IPO was grossly overpriced. Out of the unrealised loss of Rs10,072
crore as on date, the Indian subscribers have a share of Rs15,018.7 crore with individual
subscribers accounting for a major part of Rs9,949 crore (table below).
At the pre-IPO marketing stage, a few buy recommendations were for listing gains. So,
the market had gauged the aggressive pricing. Yet it is amazing how even three mutual
funds, insurance companies and finance companies each invested in the IPO.

Variance between valuation and market cannot be wished away. So good companies
often buy back shares whose market price is perceived to be lower than intrinsic value.
If the Paytm’s IPO price was fair, will it buy back share when it starts earning profit?

For a fairly-priced IPO, a minor negative variance on listing is understandable. The fall
which Paytm has experienced confirms unfair overpricing. It is hoped that SEBI will
insist on the issuers sharing most likely, upside and downside valuation details in basis
for the offer price so that the investors are not in kept in dark. The merchant bankers
should also be required to do market-making for a certain period after the IPO listing.
This will induce fair IPO pricing and the intermediaries will not be able to get away
with mere disclaimers.
Top 5 Reasons Behind Massive Failure of Paytm IPO

1. Overpriced listing

The biggest factor leading to Paytm’s fallback in the stock market was its excessively
overpriced listing. Analysts and market experts have been long pointing out the inflated
valuation of the unicorn that actually turned out to be a disaster recipe.

The IPO was issued for Rs. 2,150 per share which was much higher than the actual
valuation of the company leading to losses. One97 Communication, the parent company
of Paytm, traded at 49.7 times its FY21 revenue. This was when the company wasn’t
even recording any profits which brings us to our next reason of Paytm’s IPO debacle-

2. Bleak prospects of profitability

The company stands in the myriad of financial troubles. Since its inception, Paytm has
raised equity capital of total Rs. 190 billion. It is a matter of grave concern that 70
percent of it, which translates to Rs. 132 billion, has been used to recover losses of
company.

One after another, the company has constantly been venturing into various business
lines- payment wallet, commerce, investment, insurance, etc. Sadly, none of the
business division exhibit signs of strong financials. The company is burning cash with
vague prospects of profitability.

3. Questionable future of Paytm

Institutional investors have time to time expressed concern about the future of Paytm.
And the frenzy is now more than ever. One of the major reason behind distrust is
the absence of license to enter the lending business.

Lending divisions are the most profitable source of revenue for any fintech. A company
providing financial services has to have a lending verticle in order to be in good books
of analysts.
Paytm, however, lacks the license to enter this segment of fintech market.

4. Increasing competition from UPIs

One the success story of last decade, Paytm has now been beaten by the other
competitors in the market who have outperformed company’s numbers. While the
consumers are adopting UPI payments for easy direct bank transfers, Paytm is facing a
massive competition from big sharks that are already more successful.

The biggest threat for the company is PhonePe which constitutes 42% of overall UPI
transactions of the country. It is followed by other big names such as Google Pay and
BHIM. PhonePe and Google Pay together constitute more than 82% of the UPI market
of India which has a lot to say about Paytm’s future in this segment.

5. Flawed analyses of the Paytm IPO

A report by Macquarie Research highlighted a stark flaw in the analysis of Paytm’s

valuation. The analysts on Thursday revealed how the valuation of Paytm was decided
by the foreign investors. Foreign investors have a higher appetite for risks in the stock
market unlike Indian investors who have conventional metrics of investment. When it
comes to Indian market, profitability and earnings are the top priority- the segments
where Paytm stand no chance.

According to experts, if Indian investors are willing to buy Paytm shares in the future,
one