Paytm DRHP shows Berkshire Hathaway, Ratan Tata to sell shares; Paytm is ‘foreign-owned’ company






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Ratan Tata, the chairman emeritus of Tata Sons, is looking to sell some shares in Paytm as a part of its IPO, the draft red herring prospectus (DRHP), filed by the payments company on Friday showed.

Paytm has filed a DRHP for an initial public offering (IPO) of up to Rs 16,600 crore. The total issue size of Rs 16,600 crore consists of a fresh issue and an offer for sale (OFS) of up to Rs 8,300 crore each.

Large investors ANT, Alibaba, Softbank, Berkshire Hathaway and Elevation Capital are set to sell shares through the OFS, as per the document.

The DRHP also mentions RNT Associates of Mr Ratan Tata as a selling shareholder. RNT Associates holds 75,000 equity shares in Paytm. It is not clear what percentage of stake Tata will sell, and CNBC TV 18 has sent queries to his team.

Tata had invested in Paytm in 2015.

Read here: Paytm files DRHP with SEBI for Rs 16,600-crore IPO

Here are some interesting takeaways from Paytm’s DRHP

Plans on using proceeds

The company plans to use Rs 4,300 crore for growth, including through the acquisition of consumers and merchants and providing them with greater access to tech and financial services.

Rs 2000 crore will be used for investing in new business initiatives, acquisitions and strategic partnerships

Paytm is “Foreign-Owned”

Paytm has said that it is a foreign-owned company and will continue to be after the IPO.

“We are, and after the Offer will remain, a “foreign owned and controlled” company in accordance with the Consolidated FDI Policy and FEMA Rules and accordingly, we shall be subject to Indian foreign investment laws,” the DRHP says.

Currently, ANT Fin holds 29.6 percent stake in the company, while Alibaba holds 7.2 percent.

Paytm cannot assure profitability

While Paytm has cut down its losses over the past few fiscals, the company has said it expects to incur losses and cannot assure investors of profitability.

“We expect to continue to incur net losses for the foreseeable future and we may not achieve or maintain profitability in the future. We cannot assure you that we will ever achieve or sustain profitability and may continue to incur significant losses going forward,” the company has said.

The company has seen losses fall to Rs 1,701 crore in FY21 from Rs 2,942 crore in FY20 and Rs 4,230 crore in FY19.

However, revenue from operations decreased by 14.6 percent to Rs 2,802 cr orein FY 2021 from Rs 3,280 crore in FY 2020. Revenue from payment and financial services increased in FY 2021 from FY 2020, but such an increase was offset by a decrease in revenue from commerce and cloud services, the company said.

Marketing and promotional expenses decreased by 61.9 percent to Rs 532 crore in FY 2021 from Rs 1397 crore in FY 2020, primarily due to a reduction in customer acquisition and retention costs, such as cashbacks, digital marketing expenses and brand marketing expenses.

Litigations

Paytm is facing multiple criminal proceedings, as per the DRHP. Interestingly, Paytm received notice from ED, Bengaluru on an investigation into Chinese loan apps, and was asked to cease debit operations in relation to some entities.

Risk Factors

  • Inability to attract merchants to our ecosystem, grow our relationships with our existing merchants, and increase transaction volumes throughout our platforms.
  • Failure to attract new consumers or increase in our customer acquisition costs.
  • Inability to maintain and strengthen the network effects of our platform.
  • Inability to expand our service offerings and market reach.
  • Ongoing COVID-19 pandemic.
  • A failure to manage our growth effectively may lead to inability to execute our business plan or maintain high levels of service and satisfaction.
  • Inability to innovate and develop new services.
  • Failure to maintain or improve our technology infrastructure.
  • Ineffectiveness of our sales and marketing efforts in attracting consumers and merchants.
  • Significant increase in the payment processing charges payable to financial institutions and card networks.
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