How VC firm Elevation will score record returns as Paytm files for $2.2 bn IPO

 How VC firm Elevation will score record returns as Paytm files for $2.2 bn IPO

One97 Communications Ltd, the parent of digital wallet and e-payment services firm Paytm, has filed for a mammoth Rs 16,600 crore ($2.2 billion) initial public offering, nearly a decade after scrapping a proposed IPO in a different avatar when it was a mobile value-added services provider.

The proposed issue may trump the Coal India IPO that raised Rs 15,200 crore. However, Paytm has kept the option of a pre-IPO allotment to institutional investors that may make the issue size smaller than Coal India’s.

In dollar terms, Reliance Power’s IPO in early 2008 was bigger though it was smaller in local currency terms at less than Rs 12,000 crore. Reliance Power had a poor listing after a much-fancied issue and never regained glory as its business failed to keep up to its promise.

Paytm comes with even more hype despite clocking a huge loss and a decline in revenues last year. The company’s operating revenue declined 7.4% to Rs 2,802.4 crore for the year ended March 31, 2021 over the previous year. On the flip side, its net loss narrowed from Rs 2,942 crore to Rs 1,701 crore for the same period.

While the firm’s commerce and cloud services reported a decline in revenue, its payment business saw a 10% uptick.

IPO, Elevation’s big win

The company is looking to raise Rs 8,300 crore through a fresh issue of shares. The IPO also includes an equal amount in an offer for sale by founder Vijay Shekhar Sharma and its key investors including Alibaba and sister firm AntPay, venture capital firm Elevation Capital, SoftBank and Wall Street maven Warren Buffett’s Berkshire Hathaway.

Paytm had last issued shares in 2020 at a price that valued the company around Rs 1.16 lakh crore ($15.7 billion) then. But media reports now suggest it is pushing hard and may target a market value of $25-30 billion.

The biggest gainer among the institutional investors in the IPO would be Elevation Capital (formerly SAIF Partners). The VC firm had first bet from its third fund and Limited Partners of that fund would be laughing all the way to the bank. This fund would pocket around 200 times what it had invested on a cash-on-cash basis, as per The Capital Quest estimates.

The VC firm had reinvested in Paytm from its fourth and fifth funds, too. However, those fund vehicles would be looking at around 10-fold returns, which are juicy enough but pale in comparison to the third fund.

Ravi Adusumalli, Mukul Arora and Vivek Mathur are tagged to the Paytm portfolio from Elevation Capital.

Elevation had also posted record multiples when it exited another internet champion, Nasdaq-listed travel services firm MakeMyTrip, four years ago.

Among Paytm’s other backers, SoftBank is likely to see a two-fold upside while Berkshire Hathaway will be pocketing two-and-a-half to three times returns in the partial exit. Alibaba is estimated to be set for 4.5-5.5 multiple on its investments while sister company Ant Group will post up to two-fold returns.

At the expected IPO price, Elevation’s overall stake is likely to be worth over $5.5 billion while Alibaba and Ant Financial together would have stake worth more than $10 billion. Vijay Shekhar Sharma and SoftBank will have stakes valued around $4 billion and $6 billion, respectively.

Morgan Stanley, Goldman Sachs, Axis Capital, ICICI Securities, JP Morgan, Citibank and HDFC are managing the issue.

Vivek Sinha

The Capital Quest