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Choice Equity Broking IPO report on One 97 Communications

Paytm's parent company, One97 Communications Ltd. (OCL), is coming up with an IPO to raise Rs. 18,300cr, which opens on 8th Nov. and closes on 10th Nov. 2021. The price band is Rs. 2,080 - 2,150 per share. OCL’s IPO will be the biggest primary issue in India since Coal India Ltd.’s share sale in 2010. • The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS part of the issue. Of the net proceeds from the fresh issue, Rs. 4,300cr will be used for growing & strengthening the Paytm ecosystem, including acquisition & retention of consumers and merchants; Rs. 2,000cr will be utilized for investing in new business initiatives, acquisitions and strategic partnerships. Residual funds will be used for general corporate purposes.

Valuation and Outlook

There is a large section of population who are underserved in payments and financial services products. Also there is vast population of small businesses, which have not witnessed the benefits of digital commerce. Thus OCL has a large addressable market to serve. At higher price band of Rs. 2,150, it is demanding an EV/Sales multiple of 46.1x, which seems to be stretched. The demanded valuation is also at significant premium to China’s Ant Group proposed IPO in 2020. Thus considering the growth potential and stretched valuations, we assign “Subscribe for Long Term” rating for the issue.

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