Paytm IPO: How Brokerages Are Valuing One97 Communications - BloombergQuint

One97 Communications Ltd., which runs the payments platform Paytm, opened its initial public offering on Monday, aiming to raise Rs 18,300 crore, making it the biggest maiden offer in Indian market history. The three day offer closes on Wednesday, where investors can buy shares within a price band of Rs 2,085-2,150 per share. It was subscribed 18% at the end of the first day.

The IPO is a fresh issue of shares worth Rs 8,300 crore and an offer for sale by existing shareholders worth Rs 10,000 crore. The offer is expected to value One97 Communications at $20 billion (approximately Rs 1.5 lakh crore).

Known most commonly as Paytm, One97 Communications is a play on digital payments in India. Apart from its ubiquitous mobile wallet, Paytm offers merchant payments and credit options via its network. The company is also part owner of Paytm Payments Bank. Years into operations, Paytm remains a loss-making business.

Given its relatively unique mix of offerings, brokerages are valuing it using a host of local and international benchmarks.

Bernstein

Bernstein estimates Paytm’s valuation range between $21-24 billion, it said in a note dated Nov. 8. It uses three methodologies to arrive at this.

Approach 1:

The first approach is a price-to-revenue multiple applied to Paytm's FY27 revenue to value Paytm as of FY26. The FY26 valuation is then discounted back at 20% for four years to arrive at a valuation estimate for March 22. 

• We estimate Paytm's revenue at ~$3 billion for FY27. This constitutes ~$1.5 billion from merchant payments, ~$1.1 billion from consumer services (includes consumer payments and financial services), and ~$0.4 billion from commerce and cloud.

• We apply a ~12.5x forward revenue multiple on merchant payments revenue. We apply a ~21x forward revenue multiple on the consumer services revenue. We apply a ~5x forward revenue multiple on the commerce and cloud revenue.

• The approach yields a ~19x forward blended revenue multiple for FY27.

Approach 2:

The second approach uses the enterprise value-to-gross profit multiple on Paytm's FY27 contribution profits to arrive at an FY26 valuation. The FY26 valuation is then discounted back at 20% for 4 years to arrive at a valuation estimate for March 22.

• We estimate Paytm's contribution profits to be ~$1.2 billion for FY27. We apply a ~37x forward gross profit multiple, based on median EV-to-gross profit multiples for global listed payments businesses.

• Using a multiple range of 33-41x FY27 contribution profit, which is then discounted back at 20% for four years, the resultant valuation range comes to ~$19-24 billion for March 22.

Approach 3:

A third approach is to use the price-to-revenue multiple on Paytm's FY27 total revenue to arrive at an FY26 valuation. The FY26 valuation is then discounted back at 20% for four years to arrive at a valuation estimate for March 22.

• We apply a ~16x forward revenue multiple, based on Bajaj Finance and SBI Cards' price-to-revenue multiples.

• Using a multiple range of 13-19x FY27 total revenue, which is then discounted back at 20% for four years, the resultant valuation range comes to ~$19-28 billion for March 22.

• This implies a ~20-30x forward revenue multiple for Paytm based on FY23 estimated revenue of $0.95 billion.

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Paytm IPO: How Brokerages Are Valuing One97 Communications - BloombergQuint
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