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Paytm’s IPO Draft Red Herring Prospectus key details

The digital payment platform Paytm has presented it’s Draft Red Herring Prospectus (DRHP) on Friday (16 July), as it prepares for the country’s biggest Initial Public Offering. Paytm, led by Vijay Shekhar Sharma, plans to collect Rs. 16,600 crore through a public offering. In its prospectus, the firm stated that it will issue a fresh share worth Rs. 8,300 crore, of which Rs. 8,300 Cr will be an offer for share, inviting existing investors to liquidate their shares.

Paytm App opened on Poco F1

Source: PYMNTS.com

Paytm’s IPO draft papers featured a few concerns that any institutional or retail investor planning to take part in the company’s public offering should be aware of, which include run-ins with regulatory authorities and investors a family member of the founder having considerable influence on the company and criminal case and tax proceedings against Paytm and its directors.

The IPO funds would be used to deploy Rs. 4,300 crore in the company’s infrastructure through the acquisition and retention of consumers and merchants. It will also inject Rs. 2,000 crore in new business ventures, acquisitions, and strategic collaborations. When compared to just over two years ago, payment services generated three-fourth of total revenue from operations in FY21.

Paytm Payment Processing Charges Graph

Source: One97 Communications DRHP via BloombergQuint

Cash flow from payment services reached Rs 2,109.2 crore in FY21, climbing 10.6 percent from the previous year. While revenue from payment services increased by nearly 24 percent between FY19 and FY21. The prospectus does not crumble the economics across the company’s different products, however, to note that certain payment methods produce more fees versus the others.

In addition to the board restructuring, the firm has approved the addition of 242,904 stock options, increasing the number of Employee Stock Ownership (ESOP) pools to 2,409,428. According to the draft papers, there were 1,003,128 ESOPs outstanding on March 31, 2021, up from 877,070 on March 31, 2020. One97 Communications offers two ESOP schemes, based on the current DRHP and they are – ESOP 2008 and ESOP 2019.

Over the years, startups have offered ESOPs as a way for veteran and older employees who have been with the company from its creation to generate wealth. ESOPs have also proven to be a useful tool for startup top management looking to keep a key employee from quitting.

Paytm in its DRHP, addressed the number of shares owned by senior management individuals, as well as the ESOPs holders. Vijay Shekhar Sharma, Mark Schwartz of Goldman Sachs APAC, and Neeraj Arora, an independent director to the board, owned 5,95,45,834 shares, 935,970 shares, and 75,000 shares, correspondingly, among the directors.

Paytm mentioned that it is currently a “foreign-owned and controlled” corporation and will remain so following the IPO in compliance with the integrated FDI policy and foreign exchange regulations, and that “accordingly we shall be subject to Indian foreign investment laws”.

Paytm investors Ant Group, Alibaba, and Elevation Capital aren’t the only ones willing to offload some of their holdings. Ratan Tata’s RNT Associates owns roughly 75,000 Paytm equity stocks, and he plans to liquidate a portion of them. Berkshire Hathaway Holdings, which holds 17 million Paytm shares, will sell roughly 1,200 of its shares in the IPO.

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