Paytm founder rallies troops; D2C brands out to conquer small towns

Kevin Colleran

2 years ago

Last Thursday, the biggest-ever IPO in India went pear-shaped when Paytm’s stock fell 27% on its first day of trading. The next day, when markets were closed, the company’s founder told employees at a four-hour virtual town hall that Paytm’s focus on expanding the market and their ability to execute the plan would decide the company’s future more than anything else.

Also in this letter:

D2C brands make huge inroads in small towns
Banks warn customers about crypto risks
Ola delays deliveries of electric scooters again

Paytm has never had anything easy, founder tells staff after poor market debut

Paytm founder and CEO Vijay Shekhar Sharma

A day after Paytm made a nightmare debut on India’s stock exchanges on Thursday, its founder and CEO Vijay Shekhar Sharma held a four-hour virtual town hall with employees, sources told us.

Catch up quick: Paytm’s shares on the Bombay Stock Exchange fell 27% from the IPO price to close at Rs 1,564.15 on the first day of trading on Thursday. This gave the company a market cap of $13.3 billion, lower than its last private market valuation of $16 billion in 2019.

The markets were closed on Friday, and all eyes will be on Paytm’s share price today to see whether it rebounds or continues to slide.

Rallying the troops: Sharma told employees that Paytm has never had anything easy up front, and that they shouldn’t read too much into criticism of the company’s business model or get bogged down by the poor showing on day one.

He said Paytm’s focus on expanding the market and the ability of the team to execute the plan will decide the company’s future more than anything else. As a publicly listed firm, Paytm has to respect all its shareholders, including retail investors, he said. Many of these retail investors are believed to be Paytm users.

Too many pies: Some analysts and investors have questioned Paytm’s ability to become a market leader in any of the many businesses it is setting up in an effort to get its users to transact more.

A report from global brokerage firm Macquarie, which arrived an hour before Paytm’s stock market debut on Thursday, said it has “too many fingers in too many pies” and is thus unable to establish clear leadership in any business except in digital wallets.

IPO criticised: Discussions about Paytm’s IPO are increasingly on whether the company rushed the issue and whether its goal of launching the country’s biggest-ever IPO had backfired.

Multiple sources, including former senior employees of the firm, told us that Paytm didn’t do enough marketing for its public issue, which affected subscriptions from day 1.

Quote: “In hindsight, it was clearly overpriced and with seasoned bankers in the team, one would expect them (Paytm) to have priced it accordingly,” said a former senior Paytm employee, who holds shares in the company.

Latest numbers: Meanwhile, Paytm said its gross merchandise value — or payments made to merchants through its platform — rose 131% to $11.2 billion in October from the same month last year. This does not include peer-to-peer payments.

The number of its monthly transacting users (MTU) grew to 63 million in October, up 35% from 47 million in October 2020. GMV per MTU increased to $177 from $104.

Through its financial institution partners, the company issued 1.3 million loans worth $84 million in October. That’s an increase of 472% in the number of loans and 418% in their value from October 2020.

D2C brands make huge inroads in India’s small towns

With more people shopping online in the wake of the pandemic, India’s small towns now account for 40-50% of sales of many premium direct-to-consumer (D2C) brands across grooming and beauty, wellness foods, wearables, cookware and appliances, executives of various companies told us.

Which ones? Brands such as boAt, Bombay Shaving Company, Wonderchef, Kapiva, mCaffeine and Mamaearth expect demand from small towns to increase further, driven by affordability and first-time consumers.

Changing habits: “Almost 40% of our sales are coming from non-metro cities now,” said Vivek Gambhir, chief executive of boAt. “Constant lockdowns increased consumer confidence around online shopping and created demand for the smart wearable category, which is certain to increase further, owing to the digital boom happening across the country.”

Bombay Shaving Company, whose investors include Reckitt Benckiser and Colgate, said its revenues from smaller markets spiked about four times between March and October. Deepak Gupta, its chief operating officer, put this down to people moving back from big cities to their hometowns during the pandemic, and its competitively priced products.

D2C companies – most of which are online-only – have grown significantly since the start of the pandemic and have attracted the attention of risk investors. The growth of the D2C space has led to a proliferation of so-called “ecommerce rollup firms”, which acquire D2C brands with the intention of helping them scale.

Last week, Mensa Brands became India’s first ecommerce rollup firm to join the ever-growing list of startup unicorns. Founded by former Myntra CEO and Medlife cofounder Ananth Narayanan, Mensa joined the unicorn club after raising $135 million in a round led by Alpha Wave Ventures.

Also Read: Rollup ecommerce: an idea whose time has come

Tweet of the day

Big banks warn customers about crypto investment risks

India’s private lenders have cautioned their customers on risks associated with investing in cryptocurrencies. This comes at a time when the government is working on legislation to regulate digital currencies.

What’s happening? In the past two to three weeks, HDFC Bank, Axis and ICICI Bank have sent emails highlighting the risks to customers who invest in crypto assets.

Bankers said they are worried that aggressive advertising by crypto exchanges could lure Indians into investing, without knowing the risks, in an asset class infamous for extreme volatility.

Quote: “Our worry is that we can put all sorts of algorithms to trace customers who are putting money in crypto and have conversations with them to be careful, but beyond that we can’t do much because it’s the depositors’ money,” Axis Bank managing director Amitabh Chaudhry said. “I really worry when you see the ads because they seem to be indicating [that] it’s like a deposit. One advertisement I saw said that the returns were four times those of fixed-deposit rates.”

We earlier reported that financial and legal experts have sounded the alarm over some ads by crypto companies.

Ola delays deliveries of its electric scooters yet again

Ola Electric has yet again pushed back delivery timelines for its S1 and S1 Pro electric scooters, telling customers who have booked the vehicles that it will begin deliveries only in the second half of December owing to global chip and electronics shortages.

The company had until recently maintained that it would begin delivering its scooters in November. This was already a month behind the delivery schedule that Ola Electric had indicated to prospective buyers when it opened up a two-day window for bookings in mid-September

“Due to the ongoing global shortage of chipsets and electronic parts, there are some unavoidable delays to your Ola S1 delivery,” Ola Electric said in an email to a customer.

The earliest delivery timeline for the S1 and S1 Pro is now December 15-31, even as the company drums up more hype around its vehicles, offering test rides in nine cities including Bengaluru, Mumbai and Delhi, and promising to expand test rides to customers in 1,000 cities by December 15.

How social media influencers are fuelling the IPO buzz

Younger investors lean towards picking tech stocks and are also heavy users of social media. In the past 18 months, 29 million new demat accounts were opened, and the average age of a new demat account holder fell to 29.

Market observers said that the majority of Indian retail investors put money in IPOs without doing any research on the company and without even reading the company’s IPO filings.

Their decision is driven by a combination of factors: euphoria around the bull market, the hype around popular companies like Zomato, Nykaa and Zomato, the big listing gains that a few recent IPOs have recorded, a cursory look at high grey market prices, buzz in WhatsApp/Telegram groups, or views of influencers on Youtube.

Quote: “Social media is playing an important role in identifying investment opportunities and creating buzz around companies and IPOs,” said Neil Bahal, founder and CEO, Negen Capital, a portfolio management firm. “If the top 4–5 influencers talk about a company, it makes a difference.”

And as internet darlings like Zomato, Nykaa and Paytm listed, social media became a battleground between proponents of old-style investing and a new class of investors who believe that new loss making internet companies can’t be valued using old metrics such as price-to-earnings ratios or profit margin ratios.

Google partners with local players to drive digital transformation

Google, which started as a search engine 23 years ago, is building for India through local language support, voice search, and translations. But, as it goes deeper physically into the country through smartphones, payments, and commerce, it is starting to partner with Indian players.

Last year, the company doubled down on India with a $10 billion India Digitisation Fund. IDF’s investments are strategic and will help Google improve its existing services in India, for instance, Google Pay, Sanjay Gupta, country head and vice president, Google India, told us.

Quote: “We’re making strategic investments from the IDF which can help drive our agenda of being the catalyst for digital transformation. We’ll continue to think about how we can improve our services significantly, in partnership with some people. So, we invested some money in (offline-to-online commerce platform) DotPe because we believe that it can enable Google Pay more significantly as we move forward,” he said.

IDF has so far invested in Reliance Jio, InMobi’s lock screen product Glance, Dailyhunt’s parent VerSe Innovation, neobank Open and commerce and payment platform DotPe.

Google-owned video-sharing site YouTube bought live commerce platform simsim in July. Google has also partnered with Jio on affordable smartphones.