Damodaran driven skepticism

One of the factors that has caused this fear factor is the doubts raised by a very top-rated Ivy League professor who is also an expert in valuations. His doubts are totally justified from an academic point of view. He is right in questioning the revenue model, falling yields etc. But the one thing we have learnt about valuations of new ideas is that they are hardly driven by earnings. Otherwise, how do you explain the valuations of an Amazon or Tesla or even Byju’s in India. Most of the digital IPOs we have seen so far like Zomato or Nykaa are still efficient platforms with elegant models of handling processes and customers. What Paytm offers is something entirely different. It offers a complete ecosystem in the sense that you have a bank, a payment interface, a digital wallet, a shopping mall, ecommerce, financial services etc. An ecosystem is valuable since it has got a huge lateral potential that no other digital business has. Paytm has all the building blocks and a solid customer database that can be easily leveraged in multiple modes.  

A high value database

The one thing that really sets Paytm apart as a digital ecosystem is the huge customer and merchant database that it has. Some of the numbers are totally staggering. Paytm has over 33 crore registered customers with 5.75 crore users transacting on Paytm each month. Paytm has also the advantage of over 2.2 crore merchants on its Paytm platform and 6 crore bank accounts, which offer a huge monetization basket. Paytm has cut costs sharply, dropped freebies and cash backs and created a full portfolio of products. Going ahead, the monetization will be more about the right pegs. That will be the value driver. 

Big boys are sold on to the idea

If you look at the Rs.8,235 crore anchor placement of Paytm, the investor list reads like the who’s who of investors. The Big-3 asset managers; Blackrock, Vanguard and Fidelity are investing in Paytm. Then there are sovereign funds like GIC, ADIA and Canadian Pension Fund. But the biggest acknowledgement of the Paytm model has come from HDFC Bank. For long, HDFC Bank had been skeptical about the logic of gaining customers through cash back rewards. Now HDFC Bank has tied up with Paytm to promote its credit cards business. It is an eloquent acknowledgement that even the most valuable bank in India sees value in Paytm partnership. You surely must look at the larger picture!