Paytm parent in talks to raise funds at $5 billion valuation

Paytm’s parent in discussions with MediaTek, Temasek, Goldman, others to raise $350 million

The investment from MediaTek, a Taiwanese chipmaker, will help Paytm in pre-bundling its mobile app in MediaTek chipset phones. Photo: Bloomberg
The investment from MediaTek, a Taiwanese chipmaker, will help Paytm in pre-bundling its mobile app in MediaTek chipset phones. Photo: Bloomberg

New Delhi: One97 Communications Ltd, which runs Paytm, the online payments service and shopping website, is in advanced talks to raise $300-350 million from investors including MediaTek Inc., Temasek Holdings Pte and Goldman Sachs Group Inc., according to three people close to the development.

Taiwan’s Foxconn and Singapore’s sovereign fund GIC Pte are also likely to participate in the latest round, besides existing investors Alibaba Group and SAIF Partners, the people said, requesting anonymity.

The deal, which is expected to close in 30-60 days, will value Paytm at about $5 billion, more than double its last reported valuation of $2 billion in May 2015, the people said. The final structure of the deal is being worked upon.

Alibaba and its affiliate Ant Financial are yet to decide on whether to put money directly into the parent company, One97, or buy stakes in subsidiaries Paytm Payment Bank and Paytm E-commerce. Alibaba is also in discussions with the parent on whether to pump in fresh capital or buy stakes from existing shareholders and founder Vijay Shekhar Sharma.

With the fresh funds, Paytm, which had cash of about $300 million in hand as of June, will be able to build a strong war chest at a time when rivals are struggling to raise capital or are accepting smaller investments.

On Friday, Mint reported that online marketplace Snapdeal had raised $21 million as part of a round that was announced in February.

If completed, the Paytm transaction will be the largest funding round of any start-up in India this year.

The investment from Taiwanese chip maker MediaTek will help Paytm bundle its mobile app in phones that are fitted with MediaTek chipsets, said one of the three people cited earlier.

A Paytm spokesperson declined to comment. Sharma could not be reached for a comment.

“Paytm is an important strategic partner of Alibaba Group and Ant Financials and we will continue to support and work closely with Paytm. It is our common goal to provide equal access to financial services in India, China and around the world,” an Alibaba Group spokesperson said in an email response to Mint’s queries.

“We continue to work closely with Paytm as we have seen tremendous result of our strategic partnership since Ant’s investment in Paytm in February 2015,” an Ant Financial spokeswoman said in an email.

MediaTek, Temasek and Goldman did not respond to Mint’s email query. SAIF Partners declined to comment.

MediaTek has around 35% of India’s market share for processors used to power mobile phones, ahead of rivals including Qualcomm Inc. and Spreadtrum Communications Inc., according to a report by Bloomberg. In May, MediaTek invested an undisclosed amount in Paytm’s smaller rival MobiKwik, run by One MobiKwik Systems Pvt. Ltd.

“A lot of banking innovation will be driven by fintech companies especially in the micro payments or offline payments space, and a seamless experience can happen eventually with an integrated play between hardware companies and payment services providers,” said Vineet Toshniwal, former managing director at Equirus Capital, who is currently in the process of setting up a start-up in the financial services sector.

Investor interest in Paytm, the top online payment services provider in India, is because an overwhelming majority of transactions in the country are settled through cash, offering plenty of opportunity for growth.

Paytm founder Sharma is also one of the 11 recipients of a payments bank licence from the Reserve Bank of India (RBI) in August 2015 and is set to launch Paytm’s payments bank business by Diwali.

Last year, Chinese e-commerce giant Alibaba invested in Paytm, expecting the company to become the biggest payment services provider on the back of a large marketplace and by creating an affordable payments infrastructure even in the offline space, a model Alibaba follows in China.

In 2015, Alibaba and its affiliate Ant Financials invested less than $1 billion in Paytm.

Paytm started out as a mobile payments and mobile recharges business but the firm is today ranked among the top three consumer Internet start-ups in the country.

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 July, placing it right next to larger Internet rivals Flipkart and Amazon India.

Paytm’s GMV has quadrupled since March 2015, when it posted a monthly GMV of about Rs.490 crore, according filings with the Registrar of Companies.

Flipkart (excluding online fashion store Myntra), reported gross sales of less than Rs.2,000 crore in July, while Amazon India’s gross sales crept up above Rs.2,000 crore, Mint reported on 22 August.

Paytm has also aggressively built its e-commerce marketplace over the past two years by selling apparel, footwear, smartphones, bus tickets and movie tickets. The marketplace business contributed close to Rs.250-300 crore of GMV in July, with orders crossing 2 million, while payments contributed close to Rs.500-600 crore.

The company has set a target of reaching GMV of Rs.3,000-3,500 crore by December, Sharma disclosed earlier this month. The company had posted a loss of Rs.1,534 crore for fiscal 2016, according to documents with the Registrar of Companies.

By July 2016, around 135 million people had downloaded Paytm’s digital wallet or app, which connects customers with a merchant base of over 115,000 vendors.