Digital payments firm Paytm will launch India’s largest initial public offering ever with a $2.44 billion dual listing on India’s Bombay and National stock exchanges between Nov. 8 and Nov. 10. The Securities and Exchange Board of India, the country’s capital markets regulator, approved the share issue at the end of October.

Paytm’s IPO will be a significant milestone for India not only because of its sheer size—surpassing the previous IPO record of $2 billion set by state-run Coal India Limited in October 2010—but it will also be the second notable loss-making company after food delivery firm Zomato to raise money on Indian bourses.

Paytm, a fintech company that Indians use for daily services like buying groceries and paying their electricity bills, narrowed its operating loss to INR16.55 billion ($220.6 million) in the financial year that ended March 2021, from INR 24.68 billion ($329 million) a year ago. It counts China’s Ant Group, SoftBank’s Vision Fund, and Berkshire Hathaway among its investors. Paytm declined to comment owing to its quiet period.

The turmoil swirling around Evergrande, the indebted Chinese property developer on the brink of default, briefly dimmed investor sentiment in India over fears that the crisis would hurt global demand for Indian-made materials like steel and cement. But now investors in India have largely priced in the crisis, says V. Jayasankar, whole-time director at Kotak Mahindra Capital Co., and “overall the mood for equity markets remains robust.”

Fundraising by Indian startups crossed $10 billion in a three-month period for the first time from July to September 2021 as global investors remained bullish on the prospects of India’s internet economy, says a PwC India report.

“India has already started seeing global investors shift to the country from China. Many of them have been investing in tech startups. If there is a strong response to Paytm, then we could see more such Indian companies benefiting from the trend,” says Binod Modi, head of research at Reliance Securities.

Humble beginnings

Like many other Indian tech unicorns, Paytm’s story has a humble beginning. Its founder, Vijay Shekhar Sharma, an engineer who was born in northern Indian state of Uttar Pradesh’s Aligarh, launched One97 Communications, now the parent company of Paytm, in 2000 as a mobile content firm that offered news, cricket scores, exam results, and ringtones.

Nearly a decade later, Sharma introduced a digital payment platform, Paytm—short for pay through mobile—to serve consumers and retail shops that hadn’t yet adopted credit or debit cards. The business took off. It got a big boost in 2014 when ride-hailing firm Uber and Indian Railways listed it as a payment option. In 2016, China’s Alibaba and Ant Financial invested a combined $471 million in Paytm, and in the year to follow, the company became India’s first payment app to cross 100 million users. Sharma, who learned English by memorizing rock songs and reading their translations, became India’s youngest billionaire in 2017, when at age 39, he was worth $1.3 billion. Japan’s SoftBank invested $1.4 billion in the company in 2018, and Warren Buffett’s Berkshire Hathaway chipped in $357 million in 2018.

Paytm is now one of India’s largest digital payments companies with around 337 million users, 50 million of whom are active monthly users. Indians use the service to pay for a wide range of services, from airline flights to movie tickets. Paytm serves more merchants than any other payments firm in India, with over 20 million partners in its network. It makes money by charging large merchants a fee.

Paytm also offers wealth management solutions through Paytm Money and banking services through Paytm Payments banks.

“Paytm has been consistently reducing its losses. I think that the company would turn profitable in one or two years,” says Modi of Reliance Securities.

The company’s revenue rose 10.6% to $281 million in the financial year ended in March from the previous year, coinciding with the pandemic that drove up digital payments. In the first quarter of this fiscal year, revenue climbed 62% to $119 million, owing to a pick up in financial services such as loans, insurance sales, and wealth management, the company said in its prospectus.

Just over 50% of Indians—more than 800 million in total—own a smartphone, and that figure is forecast to increase to over 1.2 billion by 2026, according to Swedish information technology company Ericsson.

Fully subscribed

Paytm is marketing shares for $27.7 to $28.7, according to its latest regulatory filing. The higher end of the range will value the company at roughly $20 billion, 30% higher than its most recent valuation.

Industry analysts expect Paytm’s IPO to be fully subscribed, given the company’s bevy of global investors and India’s frothy market.

“Unlike other fintech players, Paytm’s biggest appeal is that it’s a brand that is known to everyone in the country,” says Reliance Securities’ Modi. “There are no growth concerns about the company, because it has established itself.”

India’s benchmark stock index, the Sensex, hit a record high of 62,156 points on Oct. 19, up roughly 30% year to date as the economy recovers and COVID cases decline. Indian tech startups are lining up to list, buoyed by the sizzling market and the pandemic-era uptick in digital transactions.

In late July, Zomato raised $1.2 billion through its initial public offering. Zomato’s shares are now trading at around $1.76 on the National Stock Exchange or nearly double their IPO price.

“Before Zomato’s IPO, people in India were not interested in loss-making companies, but the sentiment has started changing afterwards for tech companies with size and scale. It is likely to benefit Paytm,” says Piyush Nagda, head of investment products at brokerage Prabhudas Lilladher.

India’s IPO market is slated to raise a record 1 trillion rupees ($13.3 billion) in the fiscal year ending March 2022, with around $4.5 billion expected in the next three months alone, says Pranav Haldea, managing director of Prime Database, an Indian database dedicated to the primary capital market. That sum will blow past the previous record of $8.9 billion raised in 2017, he says.

Coming challenges

Paytm does face challenges ahead, particularly when it comes to India’s evolving regulation of fintech companies.

India’s central bank set up a panel in January to examine how to protect consumers from predatory lending on digital platforms.

India is also planning to introduce a data privacy law that will limit how much personal information companies can glean from their users.

There are some swaths of the Indian fintech sphere—like individual wealth management and digital gold—that are not currently subject to regulation. For Paytm, there’s the looming risk that authorities could suddenly introduce a new law that upends one—or several—of its revenue streams, says Prabhudas Lilladher’s Nagda.