Paytm parent looks to raise $500 m to fund acquisitions

Likely to use deal with Alibaba affiliate as valuation benchmark…

Close on the heels of selling a 25% stake to Ant Financial Services Group — an affiliate of Chinese e-commerce firm Alibaba — One97 Communications, which operates the mobile payments platform Paytm, is looking to raise another $500 million to fund acquisitions in its bid to become India’s leading digital payments solutions company.

On February 5, it was announced that the Jack Ma-led online retailer Alibaba’s affiliate would be acquiring a 25% stake in Paytm. The e-wallet company raised around $575 million in the process. According to sources familiar with the plan, One97 intends to use the valuation of its deal with Ant Financial Services as a benchmark to further raise around $500 million from private equity players.

The deal with Ant Financial Services, which runs China’s largest mobile wallet company, AliPay Wallet, valued Paytm at $2 billion. One97 is looking to raise fresh funds at a similar or higher valuation, these sources said.

“Over the last few months, several online payment solutions companies have been in conversation with Paytm to explore an investment by the latter in them, including outright acquisitions,” a person familiar with the development said. He declined to be identified.

Some of these companies are in the business-to-business space, wherein they design payment solutions, including gateways, for companies in specific verticals like energy and utilities. These gateways are used by companies to facilitate online bill payment by customers.

Though he declined to comment on any plans that his company may have for raising fresh funds, Vijay Shekhar Sharma, One97’s chairman and managing director, told FE that strategic acquisitions may be considered if they add value to Paytm’s existing business.

Paytm’s core business is to connect merchants and customers to facilitate transactions involving payment and receipt of money. The three main verticals that Paytm caters to are communications (services like payment for mobile bills), transport (services like payment for radio taxis) and energy (services like payment of power bills).

But, of late, the firm is also looking at backward integration by offering merchants marketing and logistical support, including the promotion and management of catalogue and inventory on behalf of merchants, many of whom are small and medium enterprises. Sharma explains that if merchants are empowered to manage their businesses better, it will help facilitate greater volumes of transaction, and Paytm would stand to earn higher revenues.

Eventually, by utilising and learning from AliPay’s technical expertise, Paytm will offer services such as credit rating and facilitating loans for its existing user base. Also, One97 has applied to the RBI for permission to set up a payment bank.

Sharma says that Paytm has some 23 million customers and 20,000 merchants on its network. By 2016, it intends to have 100,000 merchants and 100 million customers. The gross value of the transactions conducted on Paytm’s network rose to around Rs4,000 crore at the end of 2014, from around Rs1,000 crore a year earlier.

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