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Paytm’s Financial Health Check up


When the Government of India took huge swathes of cash out of circulation in 2016, India said #PaytmKaro. And the last time we checked, Paytm was valued at $16 Billion as of 2019– higher than any other Indian Startup. Ever since, it has been expanding its offerings– e-commerce, investments, travel bookings, insurance, payments bank, gaming, you name it, they’ve got it!

One might suggest that it is trying to build a super-app in India. And why not? It has 450 million registered users (which is more than WhatsApp India user base), 150 million monthly active users (MAU), and a merchant base of 15 million partners, per Inc42.


With such encouraging numbers on the board, we had to peek into their financial report cards. Here’s what it reveals:

  1. 2018-19: Blitz-scaling year: Startups are valued based on customer acquisition and user acceptance today, which is expected to pay off in the future, so when we see big-bucks-spend on marketing, it doesn’t surprise us anymore! What concerns us however is that Paytm burnt a total of INR 3,451 Crores in the year 2018-19 on marketing which is higher than its Topline of INR 3,232 Crores. This is after being around for over a decade now and achieving unicorn status 4 years ago.

  2. 2019-20: Ray of hope? Paytm significantly reduced its Marketing spend in FY 2019-20 (43% decrease), which indicates a step towards maturity right? Well not if that also results in its topline almost flatlining! (INR 3,280 Cr in FY’20 vs INR 3,232 Cr in FY’19). This probably means that if the company doesn’t keep spending on marketing expenditure, its customers simply flock to the competitors, implying weak customer loyalty.

  3. On its way to profitability: Paytm’s losses for FY’20 came down by a whopping 70% to INR 2,943 Cr. This is also a clear indication that the owners of Paytm have now started their journey to achieve unit profitability and ultimately, public listing. Food for thought: Its reduction in losses (INR 1,278 Cr) is still lesser than its reduction in advertisement costs (INR 1,968 Cr) which probably implies that there’s no improvement in its operational efficiency or unit economics. What specifically helped:

    1. In FY’20, Paytm Mall narrowed down its losses by 60% to INR 479 Crore by shutting down its warehouses and adopting a hyperlocal model, and focus on a wholesale platform instead of a consumer-facing ecommerce site (per Inc42).

    2. Paytm Payments Bank, the biggest Pie of Paytm currently has also become its first profitable subsidiary, led by higher customer acquisition in smaller cities to drive financial inclusion in the country. Its annual revenue has crossed INR 2,100 Cr, contributing a whopping 64% to the company’s Topline.


The Pandemic finally came as an uninvited relief, as Indians actually started embracing digital media. To quote Vijay Shekhar Sharma, CEO of Paytm, “So, 2020 was the year where we actually started to make money. We used to lose $40 million and now we make $14 million. So I would say Pawri ho rahi hai!


4. Cash runway expanded: The Cash runway of the company significantly increased in 19-20 to 5.7 years from 1.3 years in 18-19, primarily owing to two factors: 1st being, $1.63 Bn injected in the company through new rounds of investment and 2nd being, losses contracted by 40%.


With such a cleanup in the numbers, Paytm can be reasonably expected to be coming out with an IPO in a year or 2. And when that happens, guess who will be minting the most?

Turns out, Alipay, a wing of Ant Financials, the world’s biggest Fintech Company, based out of China, owns a whopping 30.5% of the company. SoftBank, that doesn't need an introduction, owns nearly 20% followed by Paytm's founder and CEO Vijay Shekhar Sharma who owns a 15.7% stake (which is valued at appx. 2.5 BILLION DOLLARS).


 

This article is a part of the April'21 edition of our Startup Newsletter. Here's the complete publication:


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