Paytm’s weak listing: Hang in there, business model is strong: CEO Vijay Shekhar Sharma tells investors

Paytm listing: Vijay Shekhar Sharma rang the opening bell at the Bombay Stock Exchange.

What should have been a momentous day for one of India's most storied entrepreneurs, Paytm founder Vijay Shekhar Sharma turned into a massive disappointment.

Shares of Paytm, the largest and one of the most anticipated IPOs in India, plunged by 27 percent from the issue price within hours of listing. While Paytm's listing has raised larger questions for tech IPOs, fintech, and the funding frenzy in startups, Sharma remains hopeful and optimistic.

In this interview with Moneycontrol, a subdued Sharma sought to assuage investor concerns by asserting that Paytm's growth numbers in the coming quarters would do the talking. "I have my heart for you, but hang in there", he says.

EDITED EXCERPTS:

It's been a momentous and emotional day, but also a rough one. Was this one of your toughest days as an entrepreneur, watching your shares hitting lower circuit on the listing day? 

It is an incredible privilege and honour to pull off an IPO. Finally getting listed is an important milestone in an entrepreneurial journey. I did feel a little bad when I learnt that stock has not opened up because a lot of retail investors who look up to a pop did not get to see this. I can only say to them that it is just one day. Your faith and your belief matters to us.

The business model that is out there, which is that a payment company can expand to offer credit and other financial services is a model that is definitely out there and proven in many other parts of the world.

Hopefully, next few quarters' results will give you far more confidence and trust.  I have my heart out for those who feel bad about it. At the same time, I want to say that your faith and your conviction in Paytm makes us be there for you. Hopefully, it is just one of those rough days but not how we as public listed companies will perform in the long term.

I would say, hang in there, I have my heart out for you and at the same time, I would like to say our business model is robust and strong. It is quite a mixed day. I wish that it could have been better but it is not such a bad day. It is a phenomenal day for India and us.

Where do you think you possibly went wrong. Was it the aggressive price, valuation or you didn't articulate your business model well enough? On what front could you have done better? 

Pricing is something that I personally or we were not aware of. Public market investors priced it and we took it from there. We will explain our business model better and to more people. Our business model is not a point business model. We acquire customer for A and then A makes some money, while more money is made on a derivative of A, which are B, C, D and then there is an opportunity of E, F, G. It is an A to G business model which is a long number of things to be understood. Because stock markets in India haven't seen anything like this, it is what it is. I wish we could have explained to a larger audience. I do believe we could have a far bigger and better job in terms of outreach.

In the run-up, you said you could have priced it even higher but you wanted to leave value on the table for retail invetsors. Looking at the response today, do you believe you priced this too aggressively?

Instead of us pricing it, the anchor investors and others did. The public market is a much wider stream of potential shareholders. Our commitment was to make sure there is an opportunity of gain that is left on the table. I totally see that we did not leave enough on the table for the public investors in a wider market. But as far as the potential investors we spoke with, we offered whatever price they wanted to offer. Infosys went through a dip, Facebook went through the dip. Companies that have a different business model find it difficult to explain what it is. Once our quarterly results show up, once our business gets more explored, I do believe that it will go back to positive territory and so on. The more quarters of revenue and profit growth they get to see, the better they will feel about the stock.

Has the listing and its response made you evaluate the road ahead for Paytm - is there anything that you will do differently to assure investors?

We have to simply execute our revenue and growth plan. Once that starts showing up, everyone will understand the line items that are generating revenue. Instead of storytelling, we have to let the numbers do the talking. I can only say that our role and responsibility is to deliver on those numbers that we look forward to and see our business is delivering.

Since you spoke about storytelling and letting the numbers do the talking, can you tell how business has fared? Because the topline growth has been tepid for the last couple of years, though we did see improvement in the first quarter of this fiscal. Can you take us through the growth trajectory that investors can expect? 

The numbers we can speak about only once we have done an audit and once we have announced to the stock market. I can only tell you that what you saw in the June quarter, year on year was 60% growth and year on year $50 million of contribution last year, $30 million of contribution in quarter one... what I can tell you is the trend we are seeing is that more number of people are able to leverage our platform to get credit and other financial services.

The trend continues where we are seeing that unlock, more acceptance of app platforms to disburse loans, insurance products, and wealth products is happening. Now that is exactly the reason that we believe we are having a business model that is scalable and far more profitable and revenue-generating than traditionally people have seen it.

I can only say as much that the next few quarters are good quarters to look up to.

What would you say to concerns that Paytm has its fingers in too many pies, that it lacks focus and direction? Are these some of the concerns that you will evaluate? Will you look at consolidating the number of areas that you focus on?

Our approach has been to expand on our platform exactly in the direction that the customer is in. We are not talking about us being identified as only one line item business. We are like an ice cream Sunday where you have multiple flavours of businesses and different businesses feed into other businesses to expand.

One of the most important things for us is that we are able to bring a whole suite of services to a large number of customers. All these businesses have the advantage of a common trust brand, a common ability to access the services and that's what beauty is. On an internet platform, you can deliver all these things together and that is what we are doing. This is also an obligation of a platform.

There are also concerns around competition and regulation driving down unit economics and growth prospects in the medium term. What do you have to say to that?

One of the best things about short to mid-term that we have seen is that these are the revenues and profitability line items that have started to kick in. We are far more sure of what scale based on the current line items of revenue that we are talking about. In the long term, we could think about whether we could get into some other businesses or not.

As far as short to mid-term is concerned, we have to build payment, bank, credit, wealth, and insurance. The beauty is that the integration of these works out as a great service to the customer experience and trust of the customer and it is just because and I would like to put it on the table for you and your viewers that our monetisation journey is 2019 onwards.

So, we have not even completed two years. This is the reason there is an understanding that whether it will work like we are pitching or not.

Numbers talking will give comfort and the KPIs that we are publicly declaring -- number of loans issued, insurance issued, bank accounts, amount of revenue, contribution margins will give comfort. Paytm's contribution margin of Q1 was Rs 250 crore, many companies in India don't even make that much revenue.

When are you declaring the numbers for the September quarter?

We would call a board meeting and plan the stock market announcement. We are in the process of completing our audits. So we should do it soon.

The other concern on the street is that Paytm will not be able to make significant money by merely being a distributor, it has to lend. You have a registered user base of 300 million users. Your monthly transacting user base is over 50 million. But how many of these can you lend to potentially?

One of the business model obligations is that if you own a book you cannot serve tens of millions of customers. You can only serve a few million and a few types of customers. But when you are in a distribution-led business where you don't have a cost of business that banks pay for interest-bearing and all the servicing of the bank account. You have the freedom to distribute and scale the business to places where these lenders have not reached it. These banks and NBFCs don't get access to these customers and we are able to bring access to these customers so it is a win-win.

SEBI has issued a consultation paper asking for monitoring of how new-age tech companies are using funds for acquisitions. Do you think additional disclosures on fund utilisation is required? They have also suggested that there should be a larger lock-in for anchor investors.

More or less I believe that all anchors come for the long term so don't have a comment to give on behalf of them.

When you talk about more disclosures or more inputs, it brings more transparency and more responsibility and more responsible companies to the market, so more disclosure is always welcome.

There is an interesting dichotomy. While a lot of VCs, entrepreneurs root for you, today the public market investors were still left unimpressed. Has this been a lesson for you in terms of how a public market perceives a company as compared to a private market? Even the valuation difference between Paytm, Zomato, Nykaa has evened out. Has that been a huge learning for you?

In long term, public markets win. One day is too short a window to comment on. I would say let's look at a few quarters, years, and then we will talk about it.

I can only say that opening day pop is not the single KPI for a company to perform. Companies perform on the business plan and that is what is the most important thing for us to continue.

What would your message be for retail investors who have lost a lot of money today? Thousands of crores have been wiped off. These are those investors who were perhaps very hopeful about Paytm because they have used it as a product all these years but are very disappointed today as the shareholders of the company?

This is a value discovery journey which we will have to continue to evolve.

Obviously, public market investors are disappointed. I can only continue to say that hang in there, your company is good, the revenue and contributions will show up in the way forward. It is just that the business model requires way more explanation by the numbers and the numbers would do the talking.

Rest this is a public market. Here, not a great pop is good, not a great loss is good.