NEW DELHI: Digital payment platform Paytm’s three-day initial public offer (IPO) opened on Monday. The company is looking to raise $2.46 billion to become the biggest IPO in India. Paytm’s IPO is 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 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 per cent of the offer is reserved for qualified institutional buyers, 15 per cent for non-institutional investors, and the remaining 10 per cent for retail investors. Issue size: There is a 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 offer for sale (OFS). Among investors, Antfin (Netherlands) Holding BV 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. Antfin (Netherlands) Holding is the largest shareholder in the company with 27.9 per cent stake, followed by SVF India Holdings (Cayman) with 17.3 per cent stake, SAIF III Mauritius Company (11.4 per cent), founder Vijay Shekhar Sharma (9.1 per cent), and Alibaba.Com Singapore E-Commerce (6.8 per cent). 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. The fresh issue funds will also be used for new business initiatives, acquisitions and strategic partnerships. The company has the largest payments platform in India with a GMV of Rs 4 lakh crore in FY2021. It also has an overall mobile payments transaction market share of approximately 40 percent by volume and wallet payments transaction market share of 65–70 percent in India. Should you invest in the IPO?While many experts have termed Paytm’s valuation of $19.5-20 billion as too expensive, others are concerned over the fact that it is yet to deliver a profit despite being in the business for over two decades. According to Motilal Oswal Financial Services, the key opportunity for Paytm is to monetize its large consumer base of 333 million and merchant base of 21 million through cross-selling of financial services such as credit, wealth and insurance. However, any increase in payments processing charges Paytm pays to financial institutions and card networks could hit profitability as these fees form 40% of the total operating expenses. Even ICICI Securities has warned that any failure to attract merchants and volumes can adversely affect business. It said that dependency on payment services for majority of revenue is another key risk. “Big tech firms are going for the big kill and Paytm is next in line, ready for the biggest IPO of the decade with a revenue of Rs 32 billion, but a loss of Rs 17 billion and negative cash flows. While it’s unfashionable to talk of profits in tech companies, especially the ones about to hit the markets, even on growth parameters, a lot is left to be desired. In FY21, the year of the pandemic, when use of digital wallet and mobile payments surged, the company posted a decline in the revenues. Despite a 60% cut in marketing and promotional expenses, the losses continued and road to profitability is unclear. More money is being raised from offer for sale from existing shareholders, than fresh issue. While it’s highly likely to be a successful IPO, from a long term perspective, this seems more like a speculative than a prudent investment bet,” says Richa Agarwal, senior research analyst at Equitymaster. So why is it speculative?Any valuation is a projection of future expectations. There is no doubt that mobile payments and digital cash is a megatrend. But it’s more than factored in the valuations. At the higher end of the offer price, Paytm is valued at around $20 billion, 50 times sales! This is much higher than what some of its global peers command. For instance, Paypal trades at a price to sales of 14 times. The current valuations also seem to be ignoring the competitive intensity. While Paytm was a big beneficiary of demonetisation, the firm has lost market share to relatively recent entrants. Phonepe and Google pay now dominate the UPI space. And a dozen other names have entered this space. As the competition gets brutal by the day, forget making profits , even maintaining growth rates will be quite challenging, explains Agarwal. While brokerage Angel has recommended that investors to subscribe to this issue as Patym is well positioned to benefit from the exponential 5x growth expected in mobile payments between FY2021 and FY2026, Jyoti Roy, DVP-Equity Strategist, Angel One does agree that the valuation is expensive. “At the upper end of the price band, Paytm is valued at 49.7x its FY21 revenues..While valuations may appear to be expensive, Paytm has become synonymous with digital payments through mobile and is the market leader in the mobile payment space.” Marwadi Financial Service wants investors to avoid the IPO as valuations are too demanding for a loss-making company. According to the brokerage, Paytm is at risk if it fails to retain its consumers, attract new consumers, expand the volume of transactions from consumers due to which its business, revenue, profitability and growth will be harmed. Moreover, failure to improve the technology infrastructure could also harm the business. “Considering trailing twelve months (TTM) sales of Rs 3,142 crore on post-issue basis, the company is going to list at a market cap/sales of 44.36 with a market cap of Rs.1,39,379 crore,” it said. A report from KR Choksey said the company has to remain on the path of high growth trajectory for revenues for three years for the current valuation to sustain. However, valuation guru Aswath Damodaran does agree that the fintech company should be valued at Rs 1,45,671 crore, or $19.60 billion. According to him, almost all of the value of Paytm comes from expectations of the future, and there is significant uncertainty in every single dimension. “Even if you strongly favour the company and find it undervalued, it would be hubris to concentrate your portfolio around this stock. In other words, this is the type of stock that you would put 5 per cent, or perhaps 10 per cent, of your portfolio in, not 25 per cent or 40 per cent,” he wrote in his blog.