Paytm’s Valuations Rise 4.7% As Demonetisation Lends A Helping Hand 

Paytm’s valuations rose to Rs 32,500 crore. 

 Vijay Shekhar Sharma, founder and chairman of One97 Communications Ltd., poses for a photograph at the company’s headquarters in Noida. (Photographer: Kuni Takahashi/Bloomberg) 
Vijay Shekhar Sharma, founder and chairman of One97 Communications Ltd., poses for a photograph at the company’s headquarters in Noida. (Photographer: Kuni Takahashi/Bloomberg) 

Digital wallet and e-commerce company, Paytm saw a 4.7 percent jump in its valuation in just three months. Its founder Vijay Shekhar Sharma sold 1 percent stake in the parent company, One97 Communications Ltd. for about Rs 325 crore last week, which translates to an enterprise valuation of Rs 32,500 crore.

Documents confirmed the increase in valuation by reviewing the documents filed by One97 with the Registrar of Companies.

In August, Paytm had raised nearly Rs 402 crore from Taiwan-based MediaTek’s investment arm Mountain Capital. It had issued 6,06,668 shares at a price of Rs 6,626.36 per share, which valued the company at Rs 31,042 crore, as per the company filings with the RoC.

The demonetisation induced spike in digital transactions could be one of the factors behind the increase in valuations, according to investors and analysts. “This is a secondary sale and has nothing to do with new investors coming in and these are all existing shares,” Harshad Lahoti, the chief executive officer of ah! Ventures told BloombergQuint.

With the way Paytm has come to the task and is driving the way forward coupled with demonetisation boost, it is a fair jump, however I would have expected it to be more given the massive increase in Paytm’s traction and users in the recent past.
Harshad Lahoti, CEO, ah! Ventures

Paytm Over-Valued?

The fair value of the company was pegged at Rs 16,897 crore, as per a September 3 valuation report commissioned by Paytm and prepared by Deloitte Haskins and Sells. That works out to almost half the valuation at which the August deal was struck.

“The report shows that it is the minimum price at which Paytm should be valued at,” Kunal Khattar, partner at advantEdge told BloombergQuint on the phone.

It is possible for Paytm to raise at a higher valuation, as it is up to the incoming investor to decide at what valuation they want to invest and Paytm has been doing well, so it is not surprising.
Kunal Khattar, Partner, advantEdge

The Deloitte report, which used the discounted cash flow method, had also projected that the company will be operationally profitable only by the financial year 2018-19, with a net revenue of Rs 4,624 crore and net operating profit after tax of Rs 154 crore. Paytm had posted a net loss of Rs 1,548 crore in the financial year 2015-16, as the firm spent heavily on marketing and advertisements to acquire customers.

However, Sharma says the situation has changed dramatically after demonetisation. “I can’t put a date on when we will achieve profitability, it could be 2018 or 2019, things are changing fast,” the Paytm founder told BloombergQuint.

Demonetisation: Welcome Disruption

Analysts concur. The government’s war on black money will make it easier for companies in the payments space to scale up quickly, according to Harish HV, partner - India leadership team at Grant Thornton.

I believe demonetisation will speed up the process of profitability as we will see faster adoption of people using digital payments platform. Earlier we saw companies marketing to acquire people but now people are themselves looking for non-cash avenues. 
Harish HV, Partner - India Leadership Team, Grant Thornton

China's Alibaba Group and its affiliate Ant Financial hold over 40 percent in One97. They had pumped in $680 million last year into the company. Other investors include SAIF Partners, Intel Capital and SAP Ventures.

“We will now see strong companies with good model and unit economics finding it easier to raise money,” added advantEdge’s Khattar. "Demonetisation has definitely accelerated the adoption of digital and is also the disruption we needed to shake things up a little.”