PhonePe IPO: 10 key risks investors should know from the updated DRHP

After receiving approval from the Securities and Exchange Board of India (SEBI), PhonePe has submitted its Updated Draft Red Herring Prospectus (UDRHP), advancing its much-anticipated public listing.

The firm had originally filed confidential IPO documents in September 2024 and is now expected to enter the market shortly.

As outlined in the UDRHP, the public offering will include an offer for sale of up to 50,660,446 equity shares, led by its main stakeholder Walmart along with other prominent investors like Tiger Global and Microsoft.

PhonePe dominates the UPI market in India, capturing more than 48% of the market share based on transaction value, having processed 9.8 billion transactions just in December, according to the latest NPCI data.

The company has experienced steady revenue growth over the years, benefiting from diverse income streams while continuously improving its financial results. PhonePe boasts a remarkable roster of investors, with Walmart being the primary stakeholder.

Other prominent investors include General Atlantic, Ribbit Capital, TVS Capital, Tiger Global, Microsoft, and the Qatar Investment Authority. As part of the IPO process, Walmart, the largest shareholder of PhonePe, will sell 9% of its stake, while Tiger Global intends to reduce its stake by 0.2% and Microsoft plans to offload 0.7%.

Here are some of the key risks listed by the company in its Updated Draft Red-Herring Prospectus (UDRHP):

PhonePe IPO: Key Risks

1. The company has a track record of incurring net losses and experiencing negative cash flows from its operating activities. It reported restated profits/(losses) of ₹(14,444.22) million, ₹(12,032.05) million, ₹(17,274.10) million, ₹(19,961.71) million, and ₹(27,960.69) million for the six-month periods ending September 30 in 2025 and 2024, as well as for the fiscal years 2025, 2024, and 2023, respectively. The firm also showed negative net cash flows from operating activities amounting to ₹(1,172.71) million, ₹(6,291.52) million, and ₹(7,682.50) million for the six-month period ending September 30, 2025, and for the fiscal years 2024 and 2023, respectively.
2. The Consumer Payments segment of the company contributed to 56.14%, 68.84%, 63.34%, 71.56%, and 82.91% of their operational revenue for the six-month periods ending on September 30 for 2025 and 2024, as well as for the Fiscal Years of 2025, 2024, and 2023, respectively. Any interruptions in their Consumer Payments segment could negatively impact their business, financial standing, operational results, and cash flows.
3. If the fees for payment processing imposed by financial institutions rise substantially, and they cannot transfer these increased costs to their merchants or consumers, their profit margins and overall profitability may suffer considerably.
4. Should the firm fail to maintain or grow its network of users, merchants, lending partners, insurers, or other business collaborators, its business, financial health, operational results, cash flow, and future outlook could be significantly and negatively impacted.
5. The organization faces cybersecurity threats that might cause interruptions in our operations and incur additional expenses, negatively impacting their reputation, brand, business, financial health, operational results, and cash flow.
6. The company's success relies on the ongoing contributions of their workforce, including Key Managerial Personnel and Senior Management, as well as their capability to attract and keep talent. Should they be unable to recruit, retain, or motivate their employees, and uphold their company culture and values during growth, their business could be adversely affected.
7. There are ongoing legal proceedings involving their company and its subsidiaries. Any unfavorable ruling in these matters could make them liable for damages or penalties, potentially harming their business, financial status, operational outcomes, cash flow, and future prospects.
8. The success and expansion of their business rely on their ability to innovate and create new products and services. Their inability to accurately forecast the demand for or growth of these new offerings could significantly and negatively impact their business, financial health, operational results, cash flow, and future opportunities.
9. The success of their business relies on the robustness of the PhonePe brand and the confidence their users place in them; any inability to maintain, safeguard, or boost this brand strength or trust could negatively impact their business.
10. Any non-compliance by them or their merchants, lending institutions, insurers, or other business associates with relevant anti-corruption, anti-money laundering, counter-terrorist financing, and economic sanctions laws and regulations could result in penalties and potentially harm their reputation.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.