Mint first reported on Monday that Buffett’s Berkshire Hathaway is set to buy a 3-4% stake in One97 for ₹ 2,200-2,500 crore, the billionaire investor’s first investment in any Indian company. The current round pegs Paytm’s valuation at about $10-12 billion, the report said.
The Omaha, Nebraska-based Buffett and his firm have always steered clear of money-losing internet startups that have shown zero to little promise of generating profits, especially in emerging markets. Berkshire also does not hold shares in Alibaba Group Holding Ltd, China’s e-commerce and payments giant, which is an investor in Paytm.
Investors that Mint spoke to expressed surprise that Berkshire Hathaway chose to invest in Paytm which, though the market leader, has reported mounting losses.
The company reported total consolidated losses of ₹ 1,260 crore (one-time exceptional item of ₹ 591.3 crore) in the year ended 31 March 2017 on total revenue of ₹ 828.6 crore.
While this deal is an endorsement for India’s start-up ecosystem, industry experts said it was too soon to gauge Buffet’s interest in India as an investment destination.
“This deal was largely about (Paytm founder) Vijay Shekhar Sharma and Paytm. Berkshire did not spend too much time doing diligence or carrying countless checks on the sector/competition as they are usually known to do," a person familiar with the matter said on condition of anonymity.
“The investment is a boost for the startup ecosystem as Berkshire is a marque, conventional investor, but it’s too early to say if this is part of a broader strategy," said Vinod Murali, managing partner of Alteria Capital Advisors LLP, a venture debt fund. “Berkshire has traditionally avoided both emerging markets and internet companies. So, we’ll have to wait for 18-24 months to see if they will do more such investments and whether other conventional investors will follow."
The investment comes in the middle of an unfolding a digital payments war. Over the past year, Paytm’s near-monopoly status in digital payments has been challenged by numerous players such as Google Pay, Amazon Pay, BHIM and Flipkart-owned PhonePe, while newer players such as WhatsApp’s payments service are also expected to mount a significant challenge.
With the Berkshire Hathaway investment, Paytm has effectively separated itself from the rest of the pack.
“I have been impressed by Paytm and am excited about being a part of its growth story, as it looks to transform payments and financial services in India," said Combs in a statement on Tuesday.
Berkshire Hathaway joins a long list of globally renowned investors who have parked their money in Paytm, including Japan’s SoftBank Group Corp., China’s Alibaba Group and Ant Financial. It also counts SAIF Partners and MediaTek as investors.
“We feel both excited and humbled by this endorsement. Berkshire’s experience in financial services, and long-term investment horizon, is going to be a huge advantage in Paytm’s journey of bringing 500 million Indians to the mainstream economy through financial inclusion. It is my honour to welcome Todd to our board, where he will bring his wealth of experience to guide our management team," said Paytm CEO Sharma.
Paytm claims to have touched $4 billion in monthly gross transaction value, with the number of transactions touching a peak of 1.3 billion in the quarter ended June, Mint had reported in July.
Founded by Sharma in 2000, One97 started out as a mobile payments and mobile recharge business and currently ranks among the top three consumer internet companies in the country. It has created a host of payment solutions where consumers can transact via the Paytm wallet and Paytm Payments Bank.
In the past two years, Paytm has also aggressively built its e-commerce marketplace by selling consumer goods, apparel, footwear, smartphones, bus tickets and movie tickets.
“Berkshire’s bet on Paytm did come as a surprise. If you look at their past track record, they haven’t really been bullish on India and they haven’t focused on investing in the country," said Rahul Chowdhri, partner at Stellaris Venture Partners.
“So, there’s obviously a good reason why they’ve picked Paytm over others, especially if you consider Berkshire’s capabilities in the financial services space. Somewhere, they see clear synergies with a platform like Paytm...
“I’m not sure though whether this Paytm deal is the beginning of more such bets on India from Berkshire. They are not momentum investors...I don’t think they’ll drastically loosen their purse-strings to invest in more Indian companies," Chowdhri added.