Paytm en-route to becoming a Super App

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Howdy Toasters!

In today’s issue of the Morning Toast, we discuss:

Mega IPO Time: Paytm to provide a direct play on India’s booming FinTech space 📱💸

How did Paytm start and what has the company morphed into?

Launched as a bill-payments, mobile recharge platform in 2010, Paytm’s big breakthrough arrived via multiple major events in the India story – launch of Uber, e-travel & ticketing and finally demonetization, that grossly increased the surge in mobile & merchant payments (thanks NaMO :P)
Since then, the company has evolved into a group of synergistic fintech platforms – payments (wallet / UPI), merchant acquiring, credit, savings, asset management, insurance, broking (stocks & more) and e-commerce/e-ticketing (see image below)
Paytm has a 350+ Mn installed user base, 50 Mn monthly Active user base, and a 20+ Mn merchant base (huge!!); ~half of the merchant base and ~ 1/6th the user base have accounts with Paytm Payment Bank (which is expected to apply for a Small Finance Bank license)

Interesting! Tell me more? 👀

Paytm operates differently to its peers (think: Google Pay, PhonePe), with a strategy heavily focused on merchant payments (on wallets & UPI), thus leading to a strong revenue base, with the company earning 10-15x more revenue per active user (see image below)
The company’s P2M payment volumes have grown at a 3-Yr CAGR of 67% and now process ~USD 52 Bn in transactions (massive!!); that being said, Paytm has built out a healthy 12% market share in the P2P UPI space as well, continuing to grab eyeballs, while expanding its user base
By building a large, monetizable base, the company earns a take-rate on the transactions processed, however with wafer-thin margins within the overall sphere, the company has expanded business lines
Taking a cue from leading global fintech (think: PayPal, AliPay), who have taken the cross-selling route to develop profitable & sustainable business models, Paytm has seeded multiple new businesses (see above) as the core for building a universal digital financial services ecosystem

Next steps? What can one expect from the current business mix in the near to long term? 🤔

Paytm’s core business is still in the investment/cash burn phase (albeit on a downward trajectory) amidst rising competitive intensity & regulatory risk, while other non-payment businesses still remain nascent
The path to profitability is a long one, yet when compared to peers, the company could be an early mover into the profitable zone, with new services having crossed the proof of concept stage (credit tech has on-boarded multiple banking & NBFC partners and AMC business is making dents)
Execution remains key, with larger plans likely to be consummated through efficient on-ground action- present talent pool to lead incumbent & newly launched businesses come with decades of experience, across Credit, Money & Insurance

And Valuations? IPO details? 🧐

This is India’s largest-ever public market issue (surpassing Coal India), with the Berkshire Hathaway, backed player likely to raise INR 183 Bn from the markets (price band of INR 2080 – 2150)
Likely post-market (including the funds raised) MCAP will be ~INR 1394 Bn (insane!!), which values the stock at a cool 46x FY21 P / Operating Revenue & P / Book Value of 20x (don’t miss the cool pls)
Global listed players (think: PayPal, Square) trade at 13x & 12x CY20 P / Op Revenue, while local private players (Pinelabs, BharatPay, Razorpay) were valued at 30-43x FY 20 / 21, P / OP Revenue in recent deals
The company is already India’s largest fintech player (in terms of revenue, merchants and users), with the IPO Proceeds (INR 83 Bn) likely to beef up a war-chest to further strengthen the merchant/customer acquisition engine, while funding newly seeded businesses to ride India’s fintech boom (opportunity size of USD 6 TN)

Keep a track?

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Oil prices finally get some relief! What’s up and what are the larger ramifications? 😮🙄

The government slashed excise duty on petrol and diesel by Rs. 5 and Rs. 10 after a surge in crude oil prices to avoid inflationary pressures in the economy
23 States/UTs slashed VAT on fuel but many (like MH, DL, WB, TN, TG) did not comply
The significant reduction in diesel prices will aid logistics cost, potentially trimming inflation by around 15-20 basis points
This move is expected to cost Rs. 600 bn to the Centre, excise duty collection is up 33% in H1FY22 at Rs. 1.7 tn vs budgeted Rs. 3.35 tn for FY22BE

What’s the aim here?🧐

Apart from consumer relief, the move will aid central bank’s efforts to normalize liquidity flows and restrain inflation, while reducing cost of goods in the process
It will also help delay the need to increase rates (monetary policy et al.) and continue the growth impetus for the economy

What’s the on-the-ground situation? And what’s the Fed been up to? 😏

The VRRR (the rate at which RBI absorbs extra liquidity in the system) of the RBI has been sucking up extra cash with the benchmark bond yield increased by about 12 basis points since October
Brent crude oil prices fell over 3.5 percent this month after touching a seven-year high at 85.82 per barrel on October 20
This move is welcome especially since the Fed has tapered its bond-buying programme last week, and an increase in yields globally is expected
The Fed is gradually rolling back its $120 billion/month asset purchase strategy – to be completed by June of next year

What else caught our eye? 👀

Movies act as saving grace

Movies like Akshay Kumar’s Sooryavanshi and Rajnikanth’s Annatthe are luring back people into cinemas from online streaming
Though multiplexes like PVR Cinemas and INOX Leisure Ltd are yet to decide revenue sharing streams, this comes as relief after the lockdown
India’s media and entertainment earnings fell by a quarter to $18.7 billion last year

Sun Pharma, Lupin in a soup

Both Sun Pharma and Lupin which are leading drugmakers are recalling different products in the US
Reasons cited include ‘failed moisture limits’ among others
The US is the world’s largest market for medicines (around $115.2 bn in 2019)

Power sector is hungry for coal

Dispatch of coal to the power sector has increased by 27.13% to 59.73 million tonnes in October
Fuel dispatch to many sectors like cement has declined significantly compared to the year-ago period
Main reasons include a spurt in demand due to increased import prices, and has led the government to arrange for atleast 18 days of stock with thermal power plants