Paytm parent to spin off e-commerce business

One97 Communications creates new entity Paytm E-Commerce Pvt. Ltd, which will control the firm’s online retail business


The new entity was incorporated on 16 August and lists One97 founder Vijay Shekhar Sharma as majority shareholder. Photo: Ramesh Pathania/Mint
The new entity was incorporated on 16 August and lists One97 founder Vijay Shekhar Sharma as majority shareholder. Photo: Ramesh Pathania/Mint

New Delhi: One97 Communications Ltd, which runs Paytm, will separate its e-commerce business as its key investor Alibaba Group Holding Ltd firms up plans to enter India either independently or through an acquisition, three people close to the development said.

One97 has already created a new entity called Paytm E-Commerce Pvt. Ltd, to which it will transfer the online retail business of the payments and e-commerce platform.

Once completed, the restructuring will allow Paytm E-Commerce to independently raise money from investors. “Paytm has already started talking to existing investors, including Alibaba Group, to infuse fresh capital in the new entity,” said one of the three people mentioned above. All three spoke on condition of anonymity.

The new entity was incorporated on 16 August and currently lists One97 founder Vijay Shekhar Sharma as the majority shareholder in the firm, documents filed with the Registrar of Companies show.

Once the transfer of the e-commerce business to this entity is completed, its shareholding structure will mirror that of parent One97’s, according to the people mentioned above.

Sharma, without commenting on the specifics of the restructuring, said “Payments and e-commerce have different growth cycles and we believe e-commerce business can be a sizeable opportunity going forward.”

Mint reported in May that Paytm was looking to spin off its e-commerce marketplace business.

China’s Alibaba Group, which, together with its payments arm Alipay, holds close to a 41% stake in One97, has aggressive plans to build a presence in the Indian market. The company has already started to build its team in the country.

Alibaba, which also holds a minority stake in online marketplace Snapdeal, is scouting for partnerships.

The company has held acquisition talks with Flipkart and Snapdeal, Mint reported in February.

Paytm, which started out as a mobile payments and mobile recharges business, today ranks among the top three consumer Internet companies in the country.

The company has aggressively built its e-commerce marketplace during the last two years by selling apparel, footwear, smartphones, bus tickets and movie tickets.

It has created a web of payments in the offline and online channels where consumers can transact via the Paytm wallet.

The company, at a group level, notched up close to Rs.2,000 crore in gross merchandise value (GMV, or cost of goods and services sold) in the month of July, placing it right next to larger Internet rivals Flipkart and Amazon India.

Paytm’s GMV has grown four times since March 2015, when it posted a monthly GMV of about Rs.490 crore, according to RoC documents.

Flipkart (excluding online fashion store Myntra), reported gross sales of less than Rs.2,000 crore in July, while Amazon’s gross sales crept up above Rs.2,000 crore, Mint reported on Monday.

Paytm’s marketplace business contributed close to Rs.250-300 crore of GMV in July, with orders touching over two million, while payments contributed close to Rs.500-600 crore.

O2O, the second largest category after payments, reported a GMV of Rs.300-400 crore, according to two of the three people mentioned above.

O2O, or offline to online, refers to the business strategy of companies that helps draw online consumers or online orders to offline stores.

The rest of the business came from utilities, bill payments and other services.

The company has set a target of reaching GMV of Rs.3,000-3,500 crore by December, Sharma disclosed earlier this month.

Paytm’s wallet penetration grew to 135 million in July 2016 and the company has expanded its merchant base to over 115,000 vendors.

The company had posted a loss after tax of Rs.1,534 crore for fiscal 2016, according to RoC documents.

Separately, One97 also registered Paytm Payments Bank Ltd on 22 August. Paytm Payments Bank will be a subsidiary of One97, with Sharma holding a 51% stake.

Sharma was one of the 11 recipients of a payment bank licence from the Reserve Bank of India (RBI) in August 2015. RBI regulations demand that an Indian promoter should own a majority stake in the company.

The company, through Paytm Payment Bank, is set to launch its deposits business by Diwali, which falls at the end of October.

Paytm will start the bank with an initial capital of Rs.300 crore and is expected to launch the business before November. Paytm Payment Bank is expected to become the second biggest revenue source for the parent firm after the core payments business in about two years, Mint reported in May.

Besides Alibaba Group, Paytm is backed by Alibaba affiliate Ant Financial and SAIF Partners.

In September, Paytm received undisclosed funding from Alibaba. Ant Financial and Alibaba together committed to put less than $1 billion in Paytm. This amount includes $575 million which was committed to Paytm in February 2015.

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