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Shares of One 97 Communication Ltd, the company that runs the Paytm payments service made a disappointing stock markets debut on Thursday. On the NSE, the stock was listed at 1,950, a 9.3% discount over the issue price of 2,150 apiece.

The 18,300-crore public issue of One97 Communications, the largest ever in India, was subscribed 1.89 times in the price band of 2,080- 2,150.

Ahead of the issue, Jyoti Roy, equity strategist at Angel One Ltd said that the upper end of the price band, Paytm is valued at 49.7 times FY21 revenues. “While valuations may appear expensive, Paytm is well-positioned to benefit from the exponential growth in mobile payments between FY21 and FY26, and hence, valuations are justified," she added.

Paytm is India’s largest digital ecosystem for consumers and merchants, with a gross merchandise value (GMV) of 4 trillion in FY21. GMV, or the total value of merchandise sold over a period, measures the use of the site to sell merchandise owned by others.

According to Motilal Oswal Financial Services, the key opportunity for Paytm is to monetize its large consumer base of 333 million and merchant base of 21 million through cross-selling of financial services such as credit, wealth, and insurance. Currently, payments and financial services contribute 75% to the total core revenue. However, Motilal Oswal Financial Services expects the share of the non-payments businesses to scale up rapidly.

An increase in payments processing charges Paytm pays to financial institutions and card networks could materially hit profitability as these fees form 40% of the total operating expenses, said Motilal Oswal.

Paytm derives most of its revenue from transaction fees that they collect from merchants for payment services. Paytm had negative cash flows from operating activities for FY19, FY20, and FY21, primarily due to operating losses and on account of additional working capital requirements.

“Any negative cash flows in the future could adversely affect the results of operations and financial condition," said analysts at ICICIdirect.

Paytm, which started off as a bill payments and mobile recharge platform in 2010, gradually created a payments-led ‘super app’ and evolved into a comprehensive payments ecosystem, covering payments, credit, insurance, merchants, wealth management, e-commerce services, among others.

Paytm raised 8,235 crore from anchor investors, with the anchor round oversubscribed 10 times. The issue is a combination of fresh and offer for sale. Of the net proceeds from the fresh issue, 4,300 crore will be used for growing and strengthening the Paytm ecosystem, including the acquisition and retention of consumers and merchants. Out of the total, 2,000 crore will be utilized for investing in new business initiatives, acquisitions, and strategic partnerships. In addition, residual funds will be used for general corporate purposes.

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